Column by James Contini on the transfer of wealth.
I often have questions from clients who want to set up an investment for their grandchildren on the type of account they should set up. Basically, there are three types of accounts that individuals can set up for their children and / or grandchildren. These accounts are 529 investment accounts, accounts under Ohio law on transfers to minors, and an irrevocable trust established by the parent or grandparent for the benefit of the minor. We’ll go over these different options and provide some thoughts on each of these types of accounts.
A 529 account is an account through which a person can establish the account for the benefit of a beneficiary, whom we presume to be their child or grandchild. The parent can be the owner and the beneficiary would usually be the child or grandchild. The assets in the account will grow tax free and no tax will be payable on income from a 529 account as long as the beneficiary uses the funds for qualifying education expenses, such as tuition and fees. board and lodging.
Additionally, if a person simply withdraws the funds from the 529 account, then income tax will be paid on the earnings of the funds deposited into the account. The account owner can also change the beneficiary of account 529 to another beneficiary.
Ohio transfers to minors account is an account that Ohio law allows individuals to establish, presumably for the benefit of a minor individual who we will say is their child or grandchild. It allows the individual to create this account so that it ends and the funds are distributed to the minor when they reach the particular age that was selected by the account owner. This age can be between 18 and 25 years old. This means that during this period the account assets can grow, but not tax-sheltered. In addition, when the beneficiary reaches the age that has been chosen, the financial institution must distribute the assets to the beneficiary outright.
Irrevocable trust is a special trust in which an individual establishes a trust for the benefit of a beneficiary and deposits funds in an account established in the name of the irrevocable trust. The funds will come from the person establishing the estate of the account, and the person establishing the account can also make very specific arrangements regarding the use of the funds in the account. For example, he or she may state that the trustee can distribute the income and capital to the individual for any reason, or for some various reasons, such as health, education, maintenance and support. . The terms of the trust will then determine what will happen to the funds if the beneficiary dies before the funds are fully used.
When trying to determine whether to establish a 529 education account, an account under the Ohio transfer to minors law, or an account under an irrevocable trust, a person should determine the specific objectives of creating such an account and also determining how much it provides for stake in the minor’s account. The 529 Education Account and the Ohio Transfers to Minors Act account are much easier to set up. Whereas, if an irrevocable trust is established, the training is a bit more complicated and expensive but they have much more specific control.
Therefore, when trying to determine how you can set up an account for the benefit of a minor child or grandchild, you should contact your local estate planning lawyer and financial advisor and be sure to review all positive and negative aspects of establishing such an account. before determining exactly what type of account you are going to set up.
NOTE: This general summary of the law should not be used to resolve individual issues, as slight changes in the factual situation may require a significant variation in applicable legal advice.
Lawyer James F. Contini II is a certified specialist in estate planning, trust and estates law by the OSBA. He works for Krugliak, Wilkins, Griffiths & Dougherty Co. LPA in New Philadelphia.