Providing for Your Minor Children

If you are a parent of minor children, one of your estate planning priorities may be to leave an inheritance for the children.  Leaving an inheritance directly to a minor creates a problem.  Minors cannot own more than a few thousand dollars worth of property outright. Larger amounts must be under adult management.  If your trust or will leaves substantial property directly to a minor, a court proceeding will be necessary to appoint a guardian or conservator to oversee the property.  A court proceeding is undesirable because it will take time, cost money, could cause conflict if different people vie for the appointment, and leaves you no say in who is appointed.

Better options for leaving an inheritance to a minor are:

Leave the gift to one of the child’s parents with the understanding that the parent is to use it for the child’s benefit.

Married parents frequently choose this alternative.  Each leaves all his or her property to the other in a will or living trust with the understanding that it will be used to support the family. Obviously, this alternative won’t work if the child has no surviving parent or the other parent is financially incompetent or untrustworthy.

Name a custodian under the Uniform Transfers to Minors Act (UTMA) to manage the gift. 

Most states have enacted this law.  In your will or living trust, you specify that you are leaving the inheritance to the custodian for the child’s benefit under your state’s Uniform Transfers to Minors Act.  The custodian can manage the property without court supervision.  However, he or she must manage it prudently and spend it for the child’s benefit.  Once the child reaches the age specified in the law (18 or 21 in most places), whatever is left belongs to the child outright.  This method is simple and cost-effective.  The main drawback is that the custodianship must terminate at the specified age.  If you expect the child’s inheritance to be large, you may not want him or her to get it outright at such a young age.

Leave the gift in trust for the child to be managed by the trustee. 

You can set up a trust for minor children in your will or living trust and name a trustee to manage the inheritance.  The two principal types of trusts that are used to leave property to minors are the “minor’s trust” and the “family pot trust.”  A minor’s trust is established for one child. The property you leave to that child goes into the trust and the trustee must use it only for that one child’s benefit.  You can establish a minor’s trust for each child and you can choose the age at which the trust terminates.  A family pot trust is established for two or more children. The trustee has the discretion to take money from the “pot” for the needs of each child as they arise.  A pot trust allows the trustee to make unequal distributions to the beneficiaries as their needs may require. Once all of the children have reached a specified age, the trust pot is usually divided into separate shares for each of the children.

Name a guardian to manage the child’s property in your will. 

This method has a few drawbacks.  The guardian may be subject to court supervision, which can increase the cost.  The guardianship ends at 18. And the property must go through probate (which would not be necessary if it passed through a revocable living trust to an UTMA custodian or minor’s or pot trust). However, it does allow you to choose the property manager.


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