Leaving Assets to Minors
Most people want to leave an inheritance to their children and grandchildren. In some cases, parents may choose to skip a generation and leave money and other assets directly to grandchildren. Leaving assets to minor children (those under the age of 18) is commonly done by naming them beneficiaries on bank accounts, IRA’s, or other retirement funds, insurance policies, or by designating the grandchildren as beneficiaries in a will.
Pitfalls of Leaving Assets to Minors
Minors not allowed to own assets. When naming a minor as a beneficiary, it is a guarantee that there will be a court proceeding after you pass away. The judge will appoint an attorney to represent each minor child named as a beneficiary. Each lawyer gets paid from the dollar value of the assets going to the child they represent. Probate court can be a costly and time consuming process and should be avoided whenever possible. Then, when the children turn 18, they will receive their inheritance in one lump sum. A high school senior receiving a check for the size of your estate could be an opportunity to grow up and make dreams a reality, or an opportunity to make less than ideal choices.
Creating a Trust for Minors
The best way to leave money to minor children is by creating a trust, which the minors are beneficiaries of. Trusts avoid probate and save a lot of time and effort while ensuring your wishes are followed. When you create a trust, you can spell out certain requirements and provisions that must be met. For example, instead of releasing one lump sum, you can do it in stages.
When you create the trust, you appoint trustees, who will manage the money for the minor children until they reach an age that you specify – it can be 25 or even 35. Once the minors are of age, the assets become theirs to spend, or released as per your specifications. Prior to that, the trustees can be directed to use the trust to pay for education, health care, and other items of support at your choosing.
Even modest estates can benefit from looking into creating a trust. It’s not the size of your bank account that determines if a trust is useful. Setting up your estate correctly can help to ensure your children & grandchildren receive even more money and assets instead of it going towards probate and legal fees after your death.