How Do Minor Children Receive and Manage Inheritances?

andrew • November 11, 2022

How do minor children receive and manage inheritances? The answer is, they don’t. Practically speaking, your 8-year old daughter and 12-year old son are in no position to manage their own finances, and, legally speaking, they aren’t permitted to either. Absent any estate planning, a court would have to appoint a conservator to manage the child’s inheritance until they came of age. The conservator could be an individual that the child knows, a trust company, bank, or other responsible entity. A conservator is tasked with managing the estate of a protected person and would manage, distribute, invest, and otherwise manage any inheritance received by a minor child. You may be familiar with the term “guardian,” which is the individual or party appointed by a court to raise and make decisions on behalf of a minor or vulnerable adult. A conservator is more or less the financial version of a guardian. Ideally, a parent would like to have a say in who was managing the money that they are passing down to their minor children, however, absent proactive steps, this decision could be left entirely to the court’s discretion.

Options for leaving inheritances to children

There are a number of ways to dictate how your minor child’s inheritance should be distributed and managed. The simplest way is to draft a will that includes a provision asking the court to appoint your chosen individual as conservator. While the court would still need to formally appoint your chosen individual, absent problematic circumstances, your will will generally be respected.
A much better way is to create a testamentary trust in your will. This provision will create a trust for your minor child’s share of the estate to be managed and distributed as you state in your will. You can choose a trustee, who will manage the assets and be in charge of distributions; decide under what conditions funds can be spent on your minor child (for education, healthcare, athletics, etc.); and establish a timeline for distributions of the estate. This trust is created through the probate process, however, so a probate must be opened in order to establish operation of the trust.
A more efficient, albeit slightly more complicated option, is to put your estate into a living trust. The upfront effort to establish the trust usually pays off after your passing because the trust is already operational and does not need to go through probate to be established. Your trustee does not have to receive the authority to administer the estate from the court, they simply continue operating as trustee and follow the rules of the trust document.
The living trust operates essentially like a company, designed to manage and distribute your assets according to the rules that you law out in the trust document. You can make all of the above-discussed choices, as well as others, such as keeping funds for multiple minor children in a common pool of assets until they reach a certain age. This can be an extremely effective way to manage assets intended for minor children, and provide for them in a worst case scenario. Depending on the construction of the trust, there can also be significant asset protection benefits for your children as well.
If you have any questions about how best to conveniently and efficiently transfer your assets to your children, or would simply like to begin drafting your estate plan, please give us a call .

What Next?

If you think it might be time to think through your estate plan, you can:

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