What Happens When Assets Distribute to a Minor
| Most of our clients desire to leave assets to their children, with the expectation that an inheritance received by their children will also be used in part for the client’s grandchildren. However, some parents want to bypass their children, either wholly or partially, and leave an inheritance directly to their grandchildren. Structuring an inheritance to minors come in different forms and can often be challenging to accomplish. Such distributions can include a specific bequest in Wills and Trusts, along with beneficiary designations of tax-deferred retirement plan accounts, life insurance policies, and annuity contracts. When financial assets which do not distribute by beneficiary designation are inherited by a minor, without establishing a Trust, a probate proceeding must be raised upon the passing of a client. For assets which do distribute to a minor by beneficiary designation, a formal Guardianship proceeding must be raised with the local Orphans’ Court. Judicial Intervention The reason for judicial intervention, for both assets which distribute to a minor under a Will or Trust, as well as through beneficiary designation, is because minors, those under 18 years of age, cannot receive property in their names. If a probate proceeding needs to be raised, for assets which distribute to a minor under a Will, the judge will entertain testimony regarding one or more individuals and/or corporate fiduciaries before arriving at a decision to appoint a Guardian or Co-Guardians. The role of the Guardian is to preserve and protect assets distributable to a minor, as well as to make distributions of income and principal for the benefit of the minor until the minor attains the age of majority. When the minor beneficiary attains eighteen, unless the minor is suffering from an incapacity, the Guardian is required by law to distribute the asset outright in one lump sum to the beneficiary, which may, or may not, be appropriate based upon the circumstances of the beneficiary at the time of distribution. Guardians are charged with the fiduciary responsibility of using the funds for the minor child’s health, education, maintenance, and support and can take into account other assets or resources available to the minor. Again, even if the minor has not achieved the financial acumen or maturity to properly manage assets, ready or not, the Guardian is required by law to turn over all assets to the minor upon the minor’s attainment of age, which can often have disastrous consequences. A much more suitable estate plan may be to leave assets to a minor beneficiary by creating a Trust and designating an individual who is financially responsible to serve as the Trustee. Creating a Trust The Trust Agreement can include specific language to guide the Trustee with respect to both permissible investments along with discretionary distributions of assets invested in the Trust. Unlike a Court appointed Guardianship, a Trust can also provide that the Trust continue beyond the age of eighteen, with distribution of principal authorized when the beneficiary attains specified ages, such as 30, 35, and 40, which allows the beneficiary to come into his or her inheritance gradually, instead of in one lump sum upon age 18. During the period of time when the Trust is active, the Trustee, (selected by our client, instead of a legal Guardian appointed by a Court) invests the funds exclusively for the benefit of the minor for the purposes enumerated above, either by distributing money directly to the minor or by paying bills on their behalf. Another major benefit of a Trust, compared to a Will, is that Trusts completely avoid the costs, delays, and publicity of a probate court proceeding. When establishing and finding a Trust, clients can make lifetime transfers of assets to their Trust, or in the alternative, the client can designate a Trust for a minor as beneficiary of IRA’s, life insurance policies, and annuity contracts. |
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