It is quite common for parents and grandparents to want to leave money to a person under the age of eighteen (18) years old (a “minor”). Since a person younger than 18 can not legally inherit money, having a minor as a beneficiary on one’s accounts, regardless of how small in value the accounts may be, is quite problematic.
Leaving money to a minor necessarily requires that the child’s parents (or some other adult) will need to petition a court to be appointed the minor’s legal guardian for purposes of accessing the funds left to the minor. Needless to say, the court process will be a lengthy and expensive one. Clients often list a minor child or grandchild as a beneficiary on their retirement account, annuity, or life insurance policy, intending to avoid probate and make it easy for the minor to collect the account, not realizing that doing so will make matters worse.
Making a minor child or grandchild a joint owner of one’s assets is even more dangerous than naming the minor as beneficiary. By putting a minor’s name on your accounts, you are making that minor a present owner, with the power to withdraw monies once he or she attains the age of majority. Additionally, the signature of a joint owner is generally required in connection with transactions, but a minor is unable to legally consent to such transactions.
What is the proper way to provide for minor children or grandchildren? Two options include setting up a custodial account for the minor, which means the minor gets the money at age 18 or 21, at which point the child may not be mature or responsible, and the other is contributing to a 529 college plan, which at least restricts use of the money for education. The best option is for the parent or grandparent to have a trust provision included in his or her will or revocable trust, as it offers the most flexibility and protection. You can name a trustee or trustees to hold the monies for the minor until he or she has reached a certain age or ages that you stipulate in advance, at some point later in the minor’s life when he/she is more likely to be financially responsible. The trustee can have the authority to use the monies for the child’s health, education and welfare, in his or her discretion, thereby protecting the monies from the child’s creditors and from the child’s own actions. This will ensure that the child does not receive the money until old enough and mature enough to use it wisely.
With the assistance of an experienced attorney, creating testamentary trusts for minor beneficiaries is the most effective way to provide for children and grandchildren.
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