Leaving an inheritance in your will to ensure your child or children are protected is a priority for most parents. However, the process is a slightly more complicated matter than leaving money or assets to a loved one. Addressing how to leave money to a minor child can help to ensure that all measures are taken to pass on your assets without issues in the event of your death. Learn more about creating a last will and testament online.
Unfortunately, inheritance isn’t always straightforward, particularly when it involves minor children. Assets, for example, will not pass directly to a minor beneficiary straight after your passing, as children are unable to manage large sums of money themselves.
So, what exactly happens to this money, and how do you establish your intentions to pass funds or assets on to minor children in your will? Let’s discuss the matter in more detail.
What Age Does a Minor Child Have To Reach To Receive Pecuniary Inheritance?
In all but three states, a minor beneficiary will be eligible to receive their cash inheritance the day they reach 18 years of age. In Alabama and Nebraska, the inheritance age is 19, and in Mississippi, it’s 21.
When property is left directly to a minor beneficiary, whether through a payable-on-death account or joint ownership, the minor won't have the legal authority to take control of it because of their age.
What happens to a minor's inheritance when a will is not in place or is improperly drafted depends on the laws of the state where the minor lives and the value of the bequest.
What Are My Options For Leaving Money To A Minor In My Will?
I know it can seem daunting having your money floating around in a limbo state before your beneficiaries come of age. However, you have a number of options, and in each one, the money is very well taken care of.
Option 1: Naming Minors As Your Beneficiaries
Your first option is to simply name a minor child as the beneficiary of any accounts you wish them to inherit. Should you be survived by a spouse, and the minors are your own children, they will typically be what’s known as contingent beneficiaries, meaning they’re next in line to receive the asset after the spouse–the primary beneficiary.
If you make your last will and testament without naming minors as your beneficiaries, the accounts will likely need to be secured by your loved ones in probate court, which will take time, and place financial pressure on the surviving guardian.
Option 2: Appointing a Property Guardian
Figuring out how to leave money to a minor child also requires understanding guardianship. A property guardian can be, but by no means has to be the physical guardian that either always has or now is taking care of the minors in your will. If appointed, the property guardian simply acts as steward of the assets left to a minor until they reach inheritance age.
Will permitting, some states allow an older (but still minor) child to appoint their own property guardian, saving you the hassle of securing one when penning out your final wishes.
If the assets in question are particularly sizable, certain states may enforce the appointment of a conservator to manage the funds in a more stringent manner. While this is the best way to keep the assets secure, it takes quite a bit of extra paperwork, but we can help guide you through the process.
Appointing a property guardian is one of the most efficient ways to leave money to a minor in your will, but there is one major downside to consider — Generally speaking, once your beneficiary comes of age, they will receive the full amount of the inheritance in one lump sum.
Imagine if you received a vast sum of money the day you turned 18; would you have been trusted to use it responsibly? I certainly couldn’t be trusted with money at that age.
As such, you should only pick this option if the sum of the inheritance is relatively modest, and you’re certain the beneficiary will be able to handle it.
Option 3: Appointing A Custodian Of A Uniform Transfer To Minors Act (UTMA) Account
Wondering how to leave money to a minor child? The Uniform Transfer to Minor Act (UTMA) is a law valid in all states bar South Carolina that enables people to leave money to minors without the need for a guardian or trustee to manage the funds. Instead, a custodian is appointed, which is similar to appointing a conservator.
This is a popular option as the beneficiaries of a UTMA account are shielded from tax consequences until they reach inheritance age, which ensures they'll receive the amount you intended when you wrote your will.
That said, there is a cap to this tax exemption, so if you’re planning on leaving a sizable amount to a minor, you might want to consider setting up a trust. It’s also worth noting that UTMA age and value limitations fluctuate from state to state, so always research local rules before making anything official in your will.
Option 4: Creating a Trust
Possibly the most popular option for leaving money to minors in a will is setting up an individual (for one child) or group (for multiple children) trust. Similar to your other options, funds held in a trust must be managed, this time by a trustee.
The trustee or trustees are usually the executors of the will, but that doesn’t have to be the case. As the testator (writer of the will), you can choose whomever you want to be the trustee.
One possibility is appointing the guardian of the child in question as the trustee, as they often understand the minor beneficiary better than anyone else, and can therefore be trusted to protect and utilize the fund appropriately.
The major benefit of a trust is the control it offers you over the nature of the inheritance. For example, rather than releasing the funds in one lump sum as soon as the minor becomes eligible, you can request it be released in stages, i.e. 25% at 18 years old, 25% at 25 years old, and 50% at 30.
Trusts are also incredibly secure, blocking questionable third parties from interfering, as well as establishing protections against possible legal issues your beneficiary may experience later in life, such as divorce settlements.
It’s important to note that trust funds are taxable, and your trustee will be required to fill out tax returns pertaining to the trust every year.
What Are Incentive Trusts?
Incentive trusts are slightly more customizable than the standard variant. Instead of simply specifying recipient age, you can establish additional criteria that must be met before the inheritance money is released. For instance, you might stipulate that to receive the funds, a minor must first come of age and receive a college degree.
What Happens To My Assets If I Don’t Make A Will?
Composing a final will and testament is essential if you want your assets to be handled in accordance with your wishes posthumously, which is why I suggest you begin planning yours sooner rather than later.
Should the unfortunate event of your passing occur before you make a will, your property will be divided in adherence to intestacy rules. Your family will still receive your assets, but you will have no say in who gets what, and if you’re survived by a spouse, they shall receive the entirety of your estate.
If you have no surviving family, in the absence of a legal last will and testament, your assets will be seized by the state, and no loved ones will benefit from your lifetime accumulation of wealth and property, but we can help prevent that!
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