In Illinois, transferring or leaving money or property to a minor child can be a complicated proposition. Under Illinois law, like the law of most other states, minors can’t hold property directly. Someone else- a guardian, custodian, or trustee, must hold and manage the property on their behalf. Depending on the nature of the property and how it is transferred, the individual designated to manage the minor’s funds has a number of legal rights and responsibilities.
The Illinois Uniform Transfers To Minors Act
Property can be left to a child in a will or trust under the Illinois Uniform Transfers to Minors Act (UTMA, 760 ILCS 20/1 et seq.) Transfers under the terms of this statute are irrevocable gifts – the minor becomes the legal owner of the property, which is managed in his or her name by someone else.
Under the Illinois UTMA, the minor child’s property manager is called a custodian. The custodian must be designated in the instrument granting the property to the minor. The instrument may also name “one or more persons as substitute custodians to whom the property must be transferred, in the order named, if the first nominated custodian dies before the transfer or is unable, declines, or is ineligible to serve.” The custodian’s management ends when the minor reaches age 21, at which point the property is transferred to the minor.
The UTMA grants the custodian broad discretion, without court supervision, to control and use the property, so long as the use is in the child’s interest. The custodian may, without court approval, “collect, hold, manage, invest and reinvest” the property, and may also spend as much of it “as the custodian considers advisable for the use and benefit of the minor.” The law does, however, place responsibility on the custodian to “invest and reinvest the custodial property as would a prudent person of discretion and intelligence who is seeking a reasonable income and the preservation of his capital.” 760 ILCS 20/13(b). The custodian must also maintain records related to the property so tax returns can be filed on behalf of the minor. The custodian is entitled to be paid reasonable compensation from the gift property.
Each gift under the UTMA can be made to only one minor, with only one person named as custodian. 760 ILCS 20/11. When the minor child reaches the age of majority — 21 in Illinois, the property must be furnished to the minor, along with an accounting of all funds distributed.
What Happens If Property Is Left To A Minor When A Minor’s Guardian Dies Without A Will?
In the event that an individual who is a minor’s guardian dies without a will or trust, the decedent’s estate goes through the probate process. The probate court will appoint both a guardian of the person and a guardian of the estate for the minor child. The guardian of the estate, who manages property and funds on behalf of the minor, is responsible for managing the inherited assets of the minor until the child reaches age 18, at which point the minor inherits the remaining assets.
Unlike a custodian under the Illinois UTMA, the guardian of the estate is required to report to the probate court on a regular basis, and seek approval for certain transfers. In addition, the guardian of the estate is more restricted in their use of the funds — the guardian must manage the ward’s property “frugally and shall apply the income of the principal of the estate so far as necessary for the comfort … support and education of the ward.” 755 ILCS 5/11-13(b).
Managing Funds Left In Trust For A Minor
One final tool for holding funds or property on a minor’s behalf is a revocable living trust, in which the funds can be managed by a trustee on behalf of a child. Like a custodian or guardian of the estate, a trustee has a fiduciary duty to maintain the funds in the minor’s best interest. However, a trust is a much more flexible instrument than either a transfer under the Illinois UTMA or a guardianship. Unlike a guardianship of the estate, a trust does not require court oversight of the use of funds. What is more, a trust can be structured in virtually any way the grantor would like.
Those establishing a trust most often take advantage of this flexibility in determining the ages at which funds held in trust will be paid out. Unlike a guardianship or custodial account, there is no set age at which funds held in trust must be turned over to the minor. Those establishing trusts can elect to have funds paid out at different ages, or over time, or only for specific purposes. As such, a trust offers the grantor the most control over the use of the funds and the payments to the minor.
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