Avoid These Common and Expensive Mistakes:
How to Leave Assets to Minor Children
You love your children and want to ensure that they are always taken care of. The desire to
provide for them may also be shared by their grandparents, aunts, and uncles. However, when
leaving money and property to minor children, even the best intentions can lead to big
problems. Common mistakes can cause chaos for your family. Here is what you need to know
to protect and provide for the children you love.
Common Mistake: Using a Simple Will to Leave Assets to Minor Children
Many parents assume that a simple will is all they need for their estate plan since that is where
they can nominate a guardian for their minor children. However, how the inheritances for the
children will be handled often gets overlooked. A simple will requires that beneficiaries (even
children) receive their inheritances outright in one lump sum. While most parents would prefer
that their children receive an inheritance gradually—perhaps at certain ages or milestones—a
simple will does not provide that kind of flexibility. Instead, once your child becomes an adult,
the law requires the inheritance to be handed over in a single lump sum with no strings
attached. Many parents assume this requirement will not be a problem because they believe
that the guardian in their will can manage the inheritance for their child’s care.
Unfortunately, that is not how the law works. The inheritance does not automatically flow to the
guardian but instead legally belongs to the children. And because minors cannot legally hold
more than a small amount of money in their own names, the court must step in to appoint
someone to manage the funds until the child becomes a legal adult (at age 18 or 21, depending
on the state). At that point, whatever is left is turned over to the child in one lump sum with no
restrictions.
The responsibilities of caring for your children and managing their money are separate and
distinct. The court sometimes appoints the same person to handle both. Other times, different
people are chosen depending on their strengths.1 In addition to the concern about your child
receiving a large sum of money at a young age, there is another complication: Once the
inheritance has come under court supervision, the conservator must regularly report back to the
judge as to how the money is being used for your child’s benefit. In many cases, they will also
need to obtain the court’s prior approval before certain expenditures can be made, which can
add delays, extra costs, and ongoing oversight that many families find burdensome.
Common Mistake: Failing to Avoid Court Oversight of Your Children’s Inheritance
A court conservatorship for your minor children is a slow and likely expensive process that
results in a rigid system with many rules. In most cases, nonordinary expenses (those beyond
medical, educational, and normal living expenses) must have prior court approval. Because the
court must apply the law the same way in every case, it cannot easily make exceptions for your
child’s unique needs. For example, if your child would benefit from extra tutoring or specialized
therapy, the court cannot automatically allow those expenses; it would require a separate
request and approval process.
Keep in mind that every time the conservator must go to court, there are court fees. The
conservator may also be entitled to compensation for the time they spend handling the matter,
and an attorney will likely need to be involved as well. All these expenses come directly out of
your children’s inheritance.
Correct Action: Using a Trust to Protect the Child and Their Inheritance
So what is a better way? Quite simply, using a trust. One way to use a trust is to create one in
your will. Called a testamentary trust, this type of trust allows you to name someone to manage
the inheritance (rather than having the court appoint a conservator) and decide when and how
your children will receive their inheritance (rather than receiving it in one lump sum when they
become a legal adult). However, this type of trust comes into existence only after you die and
the will goes through probate. Probate is a court process that can cause delays and expenses
that reduce the amount of money available for your children. In addition, because the details of
your will and testamentary trust are made public during probate, everyone—including people
who might try to take advantage of your children—can see what they inherited.
For most families, a better option is to use a revocable living trust. Like a testamentary trust, it
lets you choose who will manage money and property for your minor children and how your
children receive it. However, unlike a testamentary trust, a revocable living trust comes into
existence immediately when you create it, so it can govern how your children receive financial
support from you when you are deceased or if you are still alive but become unable to manage
your own affairs. Another major advantage of a revocable living trust over a testamentary trust is
that it is a private plan that does not require court involvement.
With a living trust, you have total control to
● choose the exact age or milestones, such as graduating from college or buying a first home,
when your children will receive their inheritance;
● provide for each child’s specific needs and circumstances; and
● protect the inheritance from your children’s creditors, divorcing spouses, or poor spending
decisions.
A living trust can give your children the continued protection you currently provide them long
after you are gone. By using a trust, you are not just leaving a gift; you are protecting what you
have worked so hard for, for their benefit.
These common mistakes can put your children’s future at risk. Let us create a plan that works
exactly as you intend. Contact us today to learn more about how a revocable living trust can
protect the people you love most.
