How to Leave Assets to Minor Children

All parents want to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles, and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think that if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that is not what happens. When the will is probated, the court will appoint a guardian to raise the children; usually this is the person named by the parents. However, it is the court, not the guardian, that will control the inheritance until the children reach legal age (eighteen or twenty-one). At that time, the children will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once a child attains the age of majority, the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. A guardianship proceeding may take many months or even years and can become very expensive. Every expense must be documented, audited, and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs, and other investments from grandparents and other relatives. If a child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That is because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance, or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act or Uniform Gifts to Minors Act. These are usually established through a bank, and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in your will and name someone to manage the inheritance instead of the court. You can also decide when your children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect because a will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending, and creditors (even divorce proceedings).