When it comes to estate planning, a big consideration is usually taking care of the next generations. People want to ensure that their children and grandchildren are provided for. Because of that, people sometimes name a minor child as a beneficiary of a will, insurance policy or a trust. While this is understandable, it’s important to understand that a minor cannot control those funds until they reach the age of majority.
Who takes control?
In many states, there are rules about who can manage money left to a minor in their name. For example, if the amount is over about $5,000 a parent or guardian may not be seen as the right person to be in control. The Uniform Transfers to Minors Act makes it possible for a minor child to receive a large gift of up to about $20,000. But it requires that the giver of the gift, or another responsible adult, manages the funds until they’re of age.
Parents may not have the expertise to make decisions about a large sum. They also have a conflict of interest. This can become a probate and estate administration issue. Many times, courts prefer a disinterested third party to be placed in charge of the money. However, parents or guardians may request that some inheritances be placed in a 529 college savings plan.
All of this can get very complicated very quickly. One good way of leaving money to a specific young person is through a trust, rather than as a lump sum gift. This structure can make it possible to stipulate disbursements as the person ages. Remember, estate planning is not static. It’s actually advisable to revisit documents like wills with your lawyers and financial advisors as your family ages and people’s needs change.