Proceed with Caution
I am often asked whether it is a good idea to make a minor—someone under the age of 18—the Beneficiary of a Land Trust. Many people ask this question. They are usually planning their estate or are interested in maximum asset protection.
Regardless of your motivation, having a minor as the Beneficiary of a Land Trust can get very messy. While there are rules that allow it, the practical concerns often outweigh the simplicity. You need to understand the history and the complications before you proceed.
Why is This Legal?
In the past, people who created their own Land Trusts were cautioned against naming a minor as the Beneficiary. The main reason was simple. The Trustee needed an authorized person to give them directions. At that time, no one had the authority to give these directions on behalf of a minor. Furthermore, the existing law did not define Beneficial Interests as custodial property.
However, the legal landscape changed. In Illinois, the Uniform Transfers to Minors Act (UTMA) was enacted in 1986. This law specifically provided in 10 (7) that Beneficial Interest in a Land Trust could be held as custodial property. Accordingly, the custodian of a minor under the Act is fully authorized to be a Beneficiary. Gifts made through a will are also included in this definition (Ill.Rev.Stat., c. 1101/2, 251, et seq.). The change made it legally possible to name a minor as a Beneficiary.
The Messy Reality of Naming a Minor
First, the Beneficiary of a Land Trust is the person who controls the property within the Trust. Since a minor cannot legally enter into a contract,
someone else must act for them. This creates complications for the Trustee. The Trustee will need directions to sell, refinance, or manage the property.
Secondly, you must appoint a Custodian under UTMA. This person manages the minor’s Beneficial Interest. This setup requires two different legal roles to control one property. This layering can easily lead to confusion and delays.
Finally, the property must be turned over to the child when they reach the age of majority. In Illinois, this is the age of 21 for UTMA accounts. If you want the protection and control to last longer, this setup simply won’t work. The child gains full control, regardless of their maturity or financial experience.
Constructive Alternatives for Land Trust Protection
My suggestion is that you consider ALL other methods for holding a Beneficial Interest before naming a minor directly. You can achieve better results with greater long-term control.
The obvious solution, if you’re set on having a minor as the Beneficiary, is to name an adult as the Director of the Trust. This way, the Director is the one who tells the Trustee to refinance, sell, etc. The downside of this plan is that it lacks a strategy for the minor Beneficiary to transition into control of the Land Trust when they reach adulthood.
For this reason, you could create a Testamentary Trust or an Inter Vivos Trust. These are standard trusts used for estate planning. You name the standard trust as the Beneficiary of the Land Trust. The standard trust then holds the Beneficial Interest for the child.
This method is far cleaner. The Trustee of the Land Trust only takes directions from the Trustee of the standard trust. This removes all the legal hurdles of dealing with a minor. Furthermore, you can dictate the terms of the standard trust. You can specify the exact age at which the child receives the assets. This could be 25, 30, or even later.
Another Excellent Option is the LLC Method
You can place the Beneficial Interest into an LLC. Then, you can make the child a member of the LLC. This keeps the management authority with the LLC manager (who should be an adult). This strategy provides strong asset protection and keeps the minor out of the direct chain of command.
Using one of these layered options protects your real estate investment and secures your child’s financial future without creating unnecessary legal headaches.
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