Estate planning for a married couple is often pretty straightforward: you leave all of your property and money to your spouse who also takes care of the minor children. But what happens if both parents pass away unexpectedly or if you're a single parent creating an estate plan? Parents will usually say "then the children get everything," but an estate planning lawyer will tell you that the answer isn't always that simple.
Under the law, minor children (and this goes for grandchildren, too) are required to have someone else manage their inheritance. There is no exception to this rule--children are simply unable to inherit money until they turn 18.
Parents have the option of choosing the person who will manage their children's inheritance if they create a Will or Trust. In most cases, parents will appoint the person(s) that they choose to serve as physical guardians to be also responsible for their children's money and property. However, it's possibile to choose a different person to serve in this role if you believe it's in your family's best interest. It can provide a checks and balances.
On the flip side, if you don't specifically name a person in your estate planning documents to manage your minor's inheritance, the probate court will appoint a financial guardian for your children. This guardian has to make frequent reports about the finances and has limited decision-making authority. It's not out of the question that the judge will choose a complete stranger to act as guardian--or put someone that you would never want in charge of your children's financial well-being. This is a risk you take if you don't properly document your wishes in your estate plan.
One more consideration, when leaving money to children is what happens when they turn 18, or if they're already 18 when they inherit the money. If left alone, that child--an adult in the eyes of the law--will inherit everything free and clear without the need for a guardian to manage their finances. This usually isn't the best-case scenario, especially when you think of an 18-year-old's decision-making abilities (or lack thereof). It might be just a few months before your child's inheritance is spent on things like expensive cars, designer clothes, or outlandish trips.
You can avoid this scenario by creating a the Personal Asset Trust as part of your estate plan, which sets controls on when, and in what circumstances, your child receives money. You will have named a trustee to oversee the young adult's finances while providing parameters on how the money should be spent--for example, on college or a first house. The Personal Asset Trust also provides life-long asset protection from creditors, judgments and divorcing spouses.
If you'd like more information about leaving money and property to your minor children or grandchildren, or if you would like to have your estate plan reviewed to make sure it still fits your family's needs, please call our office or shoot us an email from the "Contact Us" box below, to set up a complimentary initial consultation.