As a parent, it is important to make sure your children are taken care of in the event that something happens to you while they are still minors. The same goes for grandparents, aunts, uncles and other relatives who also want to leave some of their valuable assets to young children. While leaving assets to your loved ones is generally done with the best intentions, poor planning can have unintended consequences.
I Already Have a Will, Is That Enough?
Many parents assume that if they name a guardian for their minor children in their wills, and something ends up happening to them, the guardian will automatically be able to distribute the inheritance to cover the needs of the children. But that’s not how it works. When your will is probated, the court will appoint a guardian to raise your minor children; usually this is the person named by you in your will. But the court, not the guardian, is in control of distributing the inheritance until your children become legal adults. Once your children are no longer considered minors, they can receive their full inheritance.
Although most parents prefer that their children inherit their assets when they are older than 18, a simple will doesn’t give you this option. Once your children reach the legal age, the court must distribute the entire inheritance in one lump sum.
Common Inheritances From Relatives
The following are common assets that grandparents and other relatives want minor children to inherit:
- Real Estate
When a relative or grandparent dies and leaves assets for a minor child to inherit, the court will generally need to get involved, particularly if the inheritance is significant. Because minor children can’t be named on a title, they are not allowed to conduct business in their own name. This means that if the owner’s signature is required to sell, refinance, or conduct other business, the court will need to get involved to make sure the child’s interests are protected.
Under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), you can establish a custodial account for minor children. Custodial accounts can be set up through a bank. With these accounts, you can name a custodian to mage the children’s funds. However, if the amount exceeds $10,000, you might need court approval. Either way, the minor children will get the full amount when they reach legal age.
Make a Trust
An alternative option is to set up a children’s trust in your will. This allows you to name a person you know to manage their inheritance instead of the court. It is important to note that although you can decide when your children will be eligible to inherit your assets, the trust cannot be funded until your will has been probated, a process that takes up time and can reduce the assets. Your trust doesn’t go into effect unless you die, which means your children can’t collect their inheritance while you are incapacitated.
Many parents and grandparents prefer to set up a revocable living trust because it allows them to do the following things:
- Select a person to manage the inheritance for minor children or grandchildren
- Determine the distribution eligibility age
- Accommodate each child’s needs and special circumstances
Any assets that are put in a revocable trust are protected from the courts, irresponsible spending, and creditors.
Do you need help ensuring your assets transfer to your minor children after you are gone? Our skilled Irving estate planning attorney can review your situation and determine how to make sure your children are fully protected in the event you become incapacitated or pass away. Call (972) 330-4050 to schedule a free 30-minute consultation.