Dianne wrote: But wholly aside from the issue of control, third-party trusts offer a variety of tax and legal advantages, if they are set up before the money becomes yours.
Could you elaborate? I believe from reading your previous posts that you work in this area. I assume that paying taxes at trust tax rates is not one of the advantages.
P.S. My father's will (at my request) leaves my share outright to my children. I have no need for the income, and my children are not four. He has plenty of GST space, and the direct transfer gets it out of my estate, although presumably the trust would as well.
P.P.S. The persons involved are great grandparents; the gift from the OP's grandparents to the OP's child is not from a grandparent. This is a two generation skip, not a one generation skip. Unless you meant advantages to the OP and not advantages to the OP's child.
If the trust is drafted correctly, set up correctly, and maintained correctly, the beneficiary (OP's child) may obtain some or all of these benefits:
1. The assets in the trust will not be included in the beneficiary's estate for estate, gift, or GST tax purposes. Our newly-permanent $5.25 million exemption may seem like a lot, but Congress could reduce the exemption in the future. Or we may "grow into" this exemption, if general wealth increases faster than the inflation rate that the $5.25 million is indexed to. Or, possibly, a new tax may be enacted that existing trusts will be grandfathered from having to pay. Some wealthy families still have old trusts that are grandfathered from the generation-skipping transfer tax, and they are careful to preserve those trusts. It's hard to know what the future holds, but families that have set up trusts like these in the past have not fared badly.
2. The assets in the trust will be unavailable to some of the beneficiary's creditors, including judgment creditors. If the beneficiary grows up to become a doctor and enters a high-risk field like obstetrics, this could be valuable. Even a person in a low-risk career is vulnerable to being sued over a car accident, or as an owner of property on which an injury occurs. You don't often hear about the average person losing money this way, because the average person typically doesn't own much outside of retirement plans, which are exempt from creditors under federal law. But the more responsible and Bogleheadish the child is, the more likely he or she is to accumulate wealth that is vulnerable to this risk. (Caveat: In some states, the beneficiary will have to decline to serve as trustee in order to get this creditor protection. However, setting up the trust now at least preserves the beneficiary's ability to make that decision later on.)
3. The trust could be drafted to include special needs provisions, so that if the beneficiary is born with or later acquires a disability, the trust assets will not prevent the beneficiary from qualifying for government benefits or special education programs. Even if the trust does not contain special needs provisions, in some states a court can reform the trust to add those provisions. But a court cannot reform a trust that doesn't exist.
4. Divorce planning. A person who is responsible with money can still make a bad decision about whom to marry, or can just be tricked. In some states, money in a third-party trust is more difficult for a divorce court to reach.
These are the four major benefits in my state. Other states may have more or different benefits.
I am assuming that the OP's grandparents plan to give the great-grandchild more than just a one-time $14,000 gift. The timing of the gift, combined with the dollar amount chosen and the OP's specific questions, suggest to me that the donors may be embarking on a long-term gifting plan to reduce the size of their estate. If the donors intend to make yearly gifts of $14,000, the ultimate total amount transferred would justify the use of a trust from the beginning. If the donors aren't going to give more than one $14,000 gift, then most of my points are not very relevant. However, they may still apply to your (sscritic's) father's estate plan.