What is a Beneficiary Under 25 Sub-Trust?

A Beneficiary Under 25 Sub-Trust is a separate, irrevocable sub-trust created within your Revocable Living Trust that holds a young beneficiary's share of the estate after your death. Rather than distributing the inheritance outright to a minor or young adult — who may lack the financial experience to manage a large sum — the sub-trust holds and manages the assets under the supervision of a Successor Trustee until the beneficiary reaches a specified age (typically 25). The sub-trust is titled in the beneficiary's name — for example, the John David Doe Trust Dated 01 April 2026 – FBO Child One — and all bank accounts and investments are titled accordingly. It has its own Employer Identification Number (EIN) and files its own IRS Form 1041 tax return each year. Key features: • Spendthrift protection — the beneficiary cannot pledge, assign, or transfer their interest in the trust, and creditors cannot reach trust assets • HEMS standard — the Trustee distributes funds for the beneficiary's Health, Education, Maintenance, and Support in the Trustee's sole and absolute discretion • Staged distributions — the Settlor may specify in a Letter of Instruction that the beneficiary receives portions of the inheritance at milestones (e.g., 1/3 at age 25, 1/2 of the remainder at age 30, the balance at age 35) • Divorce shield — assets held in trust prior to marriage are generally treated as Separate Property and are not subject to division in a divorce

What is the HEMS standard and why does it matter?

HEMS stands for Health, Education, Maintenance, and Support. It is the legal standard that governs discretionary distributions from a Beneficiary Sub-Trust during the period before the beneficiary reaches the Free of Trust age. Under the HEMS standard, the Successor Trustee has the power — and the obligation — to distribute funds for the beneficiary's: • Health — medical, dental, vision, and mental health care not covered by insurance • Education — tuition, books, room and board, and related educational expenses • Maintenance — reasonable living expenses consistent with the beneficiary's accustomed standard of living • Support — basic necessities including food, clothing, and shelter The Trustee has sole and absolute discretion over all HEMS distributions. The beneficiary cannot legally demand a distribution or compel the Trustee to act — which is an important protection against creditors and predatory individuals. Important note: HEMS is appropriate for Beneficiary Sub-Trusts holding a minor's or young adult's inheritance. It is NOT appropriate for Special Needs Sub-Trusts (SNT), where HEMS language can allow the beneficiary to compel distributions and disqualify them from SSI and Medicaid.

What are staged distributions and how do I set them up?

Staged distributions allow you to specify — in a Letter of Instruction attached to your Revocable Living Trust — the ages and percentages at which your beneficiary receives their inheritance outright. This prevents a young adult from receiving a large lump sum before they have the financial maturity to manage it. A common staged distribution schedule: • 1/3 of the sub-trust balance at age 25 • 1/2 of the remaining balance at age 30 • The entire remaining balance at age 35 Alternatively, you may choose a single Free of Trust age — such as 25 or 30 — at which the beneficiary receives the entire balance outright. Between distribution milestones, the Trustee continues to manage the assets and make HEMS distributions as needed. The beneficiary receives annual accountings of the sub-trust's assets, income, and distributions. Christopher S. Mulvaney will work with you to design a distribution schedule that reflects your family's values and your beneficiary's individual circumstances.

What happens if the beneficiary dies before reaching the Free of Trust age?

If a beneficiary dies before reaching the Free of Trust age, the sub-trust assets do not pass through the beneficiary's estate and are not subject to the beneficiary's creditors or a divorcing spouse. Instead, the assets pass to the remainder beneficiaries named in the master Revocable Living Trust — typically the deceased beneficiary's own descendants (per stirpes), or if none, to the other trust beneficiaries. This is one of the most important protections a Beneficiary Sub-Trust provides: it ensures that the inheritance you worked a lifetime to build passes to your grandchildren — not to your child's creditors, a divorcing spouse, or the state.

Does the sub-trust need its own bank account and tax ID?

Yes. Each Beneficiary Sub-Trust is a separate legal entity with its own: • Employer Identification Number (EIN) — obtained from the IRS after the Settlor's death • Bank and investment accounts — titled in the name of the sub-trust (e.g., 'The Jane Doe Trust Dated 01 April 2026 – FBO Child One') • Annual tax return — IRS Form 1041 (U.S. Income Tax Return for Estates and Trusts) The Successor Trustee is responsible for opening the accounts, obtaining the EIN, filing annual tax returns, and providing annual accountings to the beneficiary. BECU and other Washington State credit unions offer trust account services for sub-trust administration. Christopher S. Mulvaney can guide the Successor Trustee through the administration process after the Settlor's death.

Christopher S. Mulvaney, Esq. — Attorney-and-Counselor-at-Law — Professionalism with Integrity — WSBA#33595 — Licensed Only in Washington State

[email protected]Bellevue, WA

Beneficiary Under 25 Sub-Trusts

Trusts Overview

Protecting Young Heirs

Keep an inheritance safe until your child is ready to manage it wisely.

When a Revocable Living Trust names a minor or young adult as a beneficiary, an outright distribution at the Settlor's death can be financially devastating. A Beneficiary Under 25 Sub-Trust holds the inheritance in a protected, managed account — governed by the HEMS standard and staged distribution milestones — until the beneficiary reaches the age of maturity you choose.

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