Written By:Scott Glatstian
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When a parent passes away, their assets and property will pass on to other close family and friends. Naturally, many parents will want their children in particular to be taken care of after they’re gone. But what happens when children inherit money they are too young or immature to manage? How can a parent be sure that their children will be cared for the way they intended?
Making sure finances and assets are properly set aside can be complicated, but it’s important to address. Fortunately, there are steps parents can take to ensure their inheritance is distributed according to their wishes.
What Happens if There Is No Plan in Place?
Most parents want an inheritance plan that will meet their specific needs and help their children in the long-run. In reality though, many parents hold off on taking action to create such a plan until later in life.
Let’s say a dad, who we’ll call Tim, doesn’t have a plan in place for his young son’s inheritance. If something were to happen to Tim while the child is under the age of 18, it would be left up to a court to make these critical decisions. It will appoint a property guardian in charge of managing the child’s inheritance. Without any input from Tim, the court could assign this responsibility to someone who Tim would have not chosen.
It’s likely the property guardian will be the other parent, but if neither parent is around, then the court will find another relative or adult close to the family. However, the person the court appoints will have a certain degree of freedom to do what they want with the inheritance until the child turns 18. This could mean that the money is spent in a way contrary to what the parent might want, or worse – against the child’s best interests.
What Else Can Happen?
Once a child turns 18, the property guardianship ends and they gain full control over any such inheritance. If there is more than one child, all children will typically get equal portions of the inheritance when they each turn 18. But, is this arrangement always what parents would want?
Let’s revisit our example from earlier in this article. Once Tim’s son turns 18, he will have full control over the inheritance, but what if he is immature and not fiscally responsible? What if he proceeds to squander the inheritance in a short amount of time, leaving him broke and without anyone to turn to for financial help? This is also not the outcome Tim would have wanted.
By working with an experienced estate planning attorney, parents can exercise control over how their inheritance is distributed to their minor beneficiaries and by whom. This will allow them to avoid these two scenarios altogether.
Can a Parent Choose the Guardian?
A parent can assign a property guardian to manage their child’s inheritance. This designation can be made in the parent’s will, giving that person the ability to exercise full control over the use of the child’s inheritance until they reach adulthood.
Alternatively, a parent can assign someone to simply manage real estate – such as a house, plot of land, or other building set to be inherited – until the child reaches adulthood. This real estate manager is called a custodian, and is similar to a property guardian, although custodians typically have fewer limitations than a property guardian. An estate attorney can help parents decide if a guardian or custodian is better suited to their specific needs, or even if these assignments are necessary in the first place.
Let’s now turn our attention to another possibility. What if you don’t want to burden someone with property guardianship or custodial responsibilities? What degree of control can parents have when they are not around to supervise the use of their inheritance? At Rosenblum Law, we address one of the more common solutions to assigning a specific inheritance plan. It’s called a testamentary trust.
What Is a Testamentary Trust and How Is It Created?
A testamentary trust is a trust that goes into effect when the parent (and trust creator) passes away. The parent can create specific requirements for the trust, and if their children or other beneficiaries do not meet the requirements, then the trust might not be created in the first place. Because a testamentary trust is frequently used by parents to plan out their child’s inheritance, it is often referred to as a “child’s trust”. If not specified otherwise, the child will gain full control of the inheritance at age 18; however, parents can assign a particular age over the age of 18 if they wish.
These trusts can create a very specific set of rules for how minor children will receive their inheritance. At our law firm, we begin the estate planning process with a series of questions. These questions will include details about assets and liabilities, who should be named as beneficiaries, and if there is anyone they would not want managing finances meant for beneficiaries.
Once answered, our attorney will ask how the client wants funds distributed. Options include, but are not limited to, distributing the money in specific portions, granting a lump sum at a specific age, or assigning a trustee to handle the inheritance. It’s important to note that these options are not limited to just planning for the care of minor children. A person may set up a testamentary trust for anyone in their life, so they don’t receive an inheritance all at once.
Choosing the Right Trustee
Any adult can be assigned as a trustee. Typically, it is recommended that the trustee be someone who is close to the parents and child. This ensures that the trustee has the child’s best interests in mind when they make decisions. It’s also important to speak with any potential trustees prior to designating them as such to ensure that they are willing and able to do the job if it is ever necessary.
A trustee will need to report any major activity involving the inheritance to the courts. This provides a back-up to make sure trustees comply with their obligations, but it is often simplest when the trustee is someone who is unlikely to run into significant issues managing the trust. An estate attorney can help parents vet candidates and select the best person for the job by asking certain questions about friends and family members who might be trustee candidates.
Where Can I Go for Help?
While it can be done, setting up a testamentary trust or other inheritance plan alone is an unwise choice. A small mistake in planning can create issues for your child when it comes time for them to inherit your assets, and at worst they can be barred from obtaining portions of the inheritance altogether. An attorney well versed in estate law will make creating an inheritance plan painless and straightforward for the parents.
At Rosenblum Law, our use of technology helps to simplify estate planning for our clients, and we guide them through the process step-by-step. We offer affordable flat-fee pricing, as well as options for those with more complicated estate issues. No situation is beyond our expertise, no matter how complex. Call us today for a free consultation at 888-815-3649 to get started.
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How to Cite Rosenblum Law’s Article
Scott Glatstian (Jul 19, 2022). Read This Before Creating Your Will Online. Rosenblum Law Firm, https://rosenblumlaw.com/read-this-before-creating-your-will-online/
Scott Glatstian "Read This Before Creating Your Will Online". Rosenblum Law Firm, Jul 19, 2022. https://rosenblumlaw.com/read-this-before-creating-your-will-online/