When considering wills and inheritances, most people consider adult beneficiaries. After all, you hope to pass when your children are grown and the people in your life are around to enjoy what you leave them. However, there are situations where children can be left with property and other assets. Leaving assets to young children and those not yet of age can be difficult from a legal standpoint. Individuals under 18 are not usually able to understand the consequences that come along with monetary gifts. Even more, some children inherit monetary gifts that involve dedicated planning and management, such as stocks, CDs, real estate, and other investments.
Guardians and Estate Assets
While most people know that it is wise to name a guardian in their will to ensure care for their minor children, most people do not realize that this named guardian will not automatically be made custodian of the children’s inherited money. Once you die, your will goes through probate, at which point a guardian is named for your child. This is usually the person named in your last will and testament. On rare occasions the court might reject a chosen guardian if they are deemed unfit for some reason.
As for inheritances, the court will be in control of this money -not the guardian- until the child reaches 18. When the child reaches legal age, the court will disburse the inheritance as one lump sum.
At that point, any assets you leave are completely theirs. Unless they are willing to let a trustworthy adult help them manage it, chances are those assets will not be well managed. While some people may consider opening a custodial account for a minor, this also may not be the best method of leaving money to a child. In custodial accounts, a designated custodian, not the court, will be named to manage the funds. However, all of the money will still be disbursed to the child once they reach legal age.
Living Trusts for Children
To avoid money (mis)management issues, it may be best to set up a living trust for your child. In your will, you can also name someone who will manage the inheritance until the child takes over. Using this option, the trust will not be handled by the court. Revocable trusts are set up while you are alive and you decide who will inherit the money and at what age. With revocable trusts, the person you choose to manage the money will still have power even if you become incapacitated. (This is not always the case with irrevocable trusts). Trusts protect the money from irresponsible spending, allowing you to name a trustworthy individual to manage the money and even place specific restrictions on when the money becomes available (18, 25, a milestone) and how much is distributed (all, half, a yearly allotment).
All assets that are in a trust are also protected from the courts. This is beneficial because court hearings and other legal technicalities can be expensive, and reduce the value of any inheritance. Even more, assets in trusts are protected from creditors. This is especially important should a divorce proceeding come into the picture.
Seek an Attorney
If you have questions about estate planning or would like to start planning your estate, contact Clear Counsel Law Group to set up a consultation. The attorneys are Clear Counsel know how to help plan estates based on individual needs.