What provision can be made to hold and manage assets for minor children and grandchildren?
Private Client (3rd edition)
- Foreign tools
Foreign entities such as trusts and private foundations may be used to hold and manage assets for minor children and grandchildren that may be transferred once a specific condition is met.
- Domestic tools
Local trusts may also be used to hold and manage assets for minor children and grandchildren that may be transferred once a specific condition is met (e.g. legal age).
- Typical arrangements under Colombian law
Colombian family law grants the parents of a child usufruct over the property of the child, save for some exceptions, such as the assets acquired by the child because of his or her work, or received by the child as a result of an inheritance, legacy or gifts. In addition, Colombian family law grants the parents a right to manage the property of their children, except for the assets acquired by the child because of his or her work.
Once a child becomes of legal age, and the parental powers over a child terminate, the parents are required to give full account of and hand over the property to the child. Parents are liable for any damage or reduction in the property of the child administered by them resulting from their negligence or wilful misconduct. They must therefore act in a careful and faithful manner. The administration of the child’s prop-erty by the parents can be subject to review by the authorities. Apart from establishing specific regulations regarding the administration of the property, authorities may, as an ultimate measure, appoint a legal guardian for the administration of the child’s property.
Minors can own assets under Italian law. However, in such a case the law generally provides that, the parents have the right of usufruct over such assets and that the income of the usufruct holder must be used for the maintenance of the family and for the education of the minor.
A Trust or a Cyprus International Trust may be employed to hold property for minors or unborn children or grandchildren.
a. Assets can be held in a trust (eg. bare trust, an interest-in-possession trust and a discretionary trust) by a trustee for the benefit of minor children or grandchildren. Trusts could be created (i) during the lifetime of the settlor or (ii) upon the death of the testator or testatrix through a will (with appropriate provisions).
b. There is no special tax treatment in Hong Kong for trusts set up for minor children and grandchildren.
Other than a Tutor, that is the person in charge of a minor, the typical structure regulated by Mexican law to be able to maintain and manage the assets of minor children and grandchildren is the fideicomiso, which, as noted, is a structure that can have any purpose as long as it is licit and determined.
Based on the foregoing, nothing would prevent a person from establishing a fideicomiso for a fiduciary institution to administer the assets of their minor children and grandchildren, provided that said assets are lawful and determined. This would have the tax consequences that were explained in previous answers.
In India, a private trust constituted under the Trusts Act provides the ability to hold and manage assets for minor children / grandchildren, future children or other vulnerable dependants. The trust deed may provide for periodic distributions or specific distributions for the purposes of medical treatment, maintenance, education, etc. in a manner that gives comfort to the settlor. The trust deed may also prohibit distributions until the minor reaches the age of majority. Apart from a separate structure, Indian legislation also recognises the ability to appoint guardians for minors and their properties. The guardian may be a natural guardian, a testamentary guardian, a guardian appointed under the Hindu Minority and Guardianship Act, 1956 (applicable to Hindus, Buddhists, Jains and Sikhs) or Guardianship and Wards Act, 1890.
In the context of a trust/foundation the settlor/founder has complete freedom regarding whom he wants to appoint as the beneficiary of the structure. Subject to limitations which might arise out of forced heirship rules, he is also free to shape the respective beneficial interests.
Thus, it is possible to appoint minor children and grandchildren as beneficiaries of a trust/foundation and to determine the amount and timing of distributions and to set terms and conditions. For example, it is possible to make distributions dependent on the beneficiaries' reaching a certain age.
In case of inheritance, the testator may appoint an executor (which can be a person other than the minor's parents) for his estate who shall manage the assets for minors until they reach a certain age.
The parents are in principle the legal administrators of a minor’s assets. When parental authority only belongs to one parent, he or she is the legal administrator. This administration can be placed under control of a judge.
Lifetime or testamentary gifts to a minor (by will or trust) can provide for administration by a third-party. In the event that the powers of the administrator are not defined, they will be those of a legal administrator under the control of a judge.
As a general rule, parents or legal custodians hold and manage assets (including inherited estate) for minor children under supervision of the family court, especially in cases exceeding the scope of ordinary management.
However, it is possible to exclude the management by parents of assets that are donated or transferred to the minor in a will. The donor/testator may appoint an administrator of the assets transferred to the minor, who will manage them until maturity of the entitled minor. Where no administrator is appointed by the donor/testator but the parents are excluded from the management of the minor’s assets, the court will appoint a curator for such assets.
As mentioned above, Polish residents may also use the institution of a foreign private foundation, where the minor may be appointed a beneficiary whose rights are determined by such foundation’s rules. However, is such case, limitations arising out of the forced heirship rule must be considered.
Several instruments may apply depending on the circumstances such as the designation of a ﬁduciary (ﬁdeicomisso).
In any case, please note that, in general, sale of relevant assets concerning minors depends on the court’s authorization.
Apart from inheritance funds described above in question 18, there are no other legal regimes introduced for this purpose.
Although very uncommon at present, the law permits that endowments are established for various private purposes, and one such purpose could be to hold and manage assets for minor children and grandchildren.
Under Swiss law, minors can hold assets in their own name. However, before reaching the age of majority the parents have parental responsibility and the right and duty to administer the children’s assets.
A testator may appoint by testamentary disposition an executor or representative to administer a child's share of an estate until a predefined age, excluding the (surviving) parent(s). Upon reaching the age of majority a child can, however, claim its share under Swiss forced heirship rules.
Assets can be held and managed for minor children and/or grandchildren by a custodian or a Trustee.
Under the Uniform Transfers to Minors Act (UTMA), a person can open a custodial bank account for the benefit of a minor child. The assets in an UTMA account are managed by a designated custodian and distributed to the child when he or she attains the age of 18 or 21, depending on the state and the donor’s preference. A UTMA account for a child that is under the age of 19 or a full-time student under the age of 24 and holds unearned income that is in excess of $2,200 is taxed at the ordinary and capital gains rates applicable to trusts and estates.
Another option is to transfer assets in trust for the benefit of a minor child or grandchild. Most standard trust arrangements will work, but some are more tax advantaged than others. For example, certain trusts allow the donor to make gifts that qualify for the annual exclusion. One type of trust that qualifies for the annual exclusion requires that each beneficiary receive (a) notification of any contribution made to the trust, and (b) is given the opportunity to withdraw his or her share of the contribution. Another type of trust gives the minor child the right to withdraw the assets of the trust upon attaining the age of 21. Under either trust structure, if the child chooses not to exercise his or her right to withdraw the assets within a specified period of time, the assets can remain in trust until some later date (designated by the settlor of the trust). Yet another type of tax-advantaged trust can make use of the settlor’s GST exemption thereby sheltering assets from transfer tax for multiple generations. The taxation of income generated by assets held in trust varies based on the type of trust and the way in which it is structured.
Assets can be held and managed for the benefit of minor children and grandchildren by way of a trust.
A child’s parents are the natural guardians of the child and have rights to make decisions relating to the child so long as the child is a minor. No application to court is necessary even if the child has disabilities, whether mental or physical.
Under Section 7 of the Guardianship of Infants Act (Cap. 122), the father or mother of a minor may by deed or Will appoint any person to be the guardian of the minor after his or her death. This appointment does not require a court application. In other instances, a person may apply to the court under the Guardianship of Infants Act to be appointed as the guardian of a minor. The court may also exercise its powers to remove any existing guardian and to appoint another guardian in their place. While guardianship does not normally require ongoing court supervision, all guardians must generally act in the best interests of the minor.
Once, however, a child reaches the age of majority (that is, above the age of 21 years), the parent no longer has decision-making rights for the child. In such circumstances and where the child is mentally incapable, the parent will need to apply to court to be appointed as deputy for their adult-child in order that they can continue to make decisions for that child.
As Israel sees a rapid growth of high individual wealth, as a result of large-scale sales of companies and businesses to global corporations, especially in the hi-tech industry, younger first generations of means, with young children or in their second marriage, tend to prefer setting up trusts for the regulation of wealth transfers and for the protection of their children. These trusts, although discretionary and irrevocable, are often set up for a limited period of time, until the minor has reached maturity and is able to cope with large amounts of funds.
As already explained, because minors (children and grandchildren) are protected by the Civil Code, there is no standard provisions allowing holding and managing assets for them.
The trust remains a very efficient tool to achieve the protection of minors despite the caveat already explained in § 21.
Minors can hold assets directly. In order to legally obtain an asset by contract from a parent or grandparent, a family court must typically appoint a legal guardian. Thereafter, it is generally the parents’ duty to administer the asset.
Testators typically provide for executorship (see question 17) with regard to assets that are inherited by minors. For lifetime gifts, family companies can be used to control the minors’ rights with regard to the assets, e.g. through golden shares for the donor.
24.1 The age of majority in the UK is 18 years. However, it is common for trusts and Wills to be drafted so that a child or grandchild's interest depends upon him reaching a greater age, for example, 21 or 25 years.
24.2 Property given to a child or grandchild who is under the age of 18 is generally held on trust (§19.2) for that individual, and the trustees (§19.2) may have wide powers under the terms of the gift or under the general law to invest and manage the property and to use it for his benefit before he reaches that age.
24.3 UK tax rules make it generally quite efficient for grandparents to set up bare trusts (§19.3) for their grandchildren, but not for parents to set up such trusts for their children. Where a grandparent makes a gift into bare trust for the exclusive benefit of a grandchild, that gift will not suffer any inheritance tax (§5) on the grandparent's death if the grandparent survives seven years from the date of the gift, and the income and capital gains arising to the trustees (§19.2) are treated as the grandchild's for tax purposes and so may fall within the grandchild's personal allowance (§2.3) and annual exempt amount (§2.10).