Q. When I was younger, I had a child with an illegal immigrant who still lives here but I was never on the birth certificate. I never see the child who is now 17. If I want to leave money to him, will his mother’s status be a problem? He should be a citizen, right, because I am? What do I need to worry about?
A. Unless otherwise specified, any funds left to a minor are controlled by the minor’s guardian and the default guardian is the child’s parent.
So, if you leave financial assets to your son without specifying who the guardian will be, your son’s mother will be the guardian, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.
Novick said if leave you son financial assets, they will have to go into a custodial account — a NJ Transfer to Minors Act (UTMA) — and your child’s mom will need to open the account on his behalf.
“This may not present a problem because a non-citizen can open a financial account with a valid ID, such as an unexpired passport or driver’s license, and an Individual Taxpayer Identification Number (ITIN), which can be obtained regardless of immigration status,” Novick said.
Novick said whether your son’s mother is willing to serve as custodian is another matter, as she may still perceive an immigration risk, especially given the uncertainty about what may change under President-elect Trump.
Luckily, you don’t have to put her in an awkward position because there are other options.
One option is to delay modifying your will (or the beneficiary designation of any retirement accounts or life insurance policies) to avoid leaving assets to your son until he is 18, Novick said.
A second, and probably better alternative, is to specify the custodian of any property that passes to your son while he is a minor.
“You can choose anyone to serve as your son’s custodian, such as another family member or friend who is a U.S. citizen and will have no qualms about serving as custodian,” Novick said. “Note that custodial accounts in New Jersey terminate at age 21, at which time your son will become responsible for the account.”
But, he said, you can specify that the custodial account terminates as early as age 18 or the custodian can terminate the account any time between ages 18 and 21.
A third option is that many financial institutions will allow you to hold an account in your own name and add a Transfer on Death (TOD) feature.
Novick said the TOD feature essentially adds a beneficiary designation to a regular account so it doesn’t require changing your will.
“While you are alive, the account belongs to you so you can put money into this account or take money out at any time,” he said. “At your death, any funds in the account automatically pass to the named beneficiary.”
Importantly, you can specify the custodian of the UTMA account that will be opened if the named beneficiary is a minor.
If you plan on leaving substantial assets to your son, a fourth option is to set up a trust for his benefit.
Novick said the trust can be established in your will or via a separate legal document. You can name anyone as the trustee (a U.S. citizen is preferred) and specify the terms of the trust, such as when principal and income should be distributed, he said.
“One of the big advantages of a trust is that it can extend beyond your son’s age 21,” Novick said. “Additionally, trusts provide protection against over spending, creditor protection, and protection against equitable distribution in the event of divorce. Some states (including NJ) allow the trust to continue indefinitely.”
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