Estate Planning: Unified Credit; Gifts; Sprinkle Trust; Minor Children
Should I Make a Gift to My Minor Children To Take Advantage of the $5 Million Unified Credit Amount, and if so, How Do I Protect Against Unforeseen Uncertainties Among My Minor Children?
Yes, if you are financially capable you should make a gift to take advantage of the $5 Million United Credit Amount.
However, many times the potential beneficiaries are younger generations including minor children and minor grandchildren. At the time when they are toddlers, children, and teenagers, how can a person make a gift in trust now, but help ensure the funds go where needed? Simply splitting funds equally among five children is equal. However, there is a difference between equal and equitable as equal is the same dollar amount whereas equitable simply means what is fair and just. A simple equal split may not be equitable when one child has a greater legitimate need due to medical problems, humanitarian choice of career, or a sudden tragic life altering events. A sprinkle trust is the solution to this by providing the trustee with an absolute discretion to “sprinkle” the funds among the various beneficiaries as he believes equitable, but no obligation to make any payments to any particular beneficiary.
For example, even if the children are not minor, if funds are split between the five children equally, it may be equal but not equitable. Child A may be a Wall St. banker or own a large factory with earnings in excess of $1 million a year; Child B may be a doctor or an attorney earning $500,000 a year; Child C may have a drug addiction/risky lifestyle; Child D may be a high school teacher making a lesser income with a large family of exceptionally bright grandchildren; and, Child E may have lost a limb while fighting in Iraq. The use of a sprinkle trust allows the trustee to distribute the funds more equitably. For example Child A and Child B may not need the funds whereas the other children have more genuine needs for education, medical care, or drug rehab. Further, a sixth Child F may be born after the gift was made and the sprinkle trust allows this child to receive benefits.
Thus, a sprinkle trust allows for a donor to make a 2012 gift to utilize the higher exemption amount without worrying if the allocation of funds will not be used as he desires to meet the particular needs of any individual child beneficiary. It provides optimal estate tax planning allowing by allowing the gift to avoid millions of dollars of additional Federal Estate Taxes and the flexibility to adapt to future distributions.
Further, many clients may use the same sprinkle trust to provide flexible discretionary benefits when he/she has minor children and the funds are held for all children in a single “pot” until his/her youngest child attains the specified age of 21, 23, 25 or any other variation.
Contact our Philadelphia Estate Planning Attorney and Philadelphia Business Law Attorney with your questions, comments or concerns.