Minors cannot be given significant amounts of money outright. If you plan to leave a child more than a few thousand dollars, you will need to arrange for an adult to manage the inheritance. If you don’t make appropriate arrangements before you die, a court will have to appoint a property guardian or conservator. A court proceeding will be expensive, cause delay, and give you no choice in who is appointed to manage the funds.

Two effective ways to provide management for a minor’s inheritance are by naming a custodian pursuant to the Uniform Transfers to Minors Act (UTMA) or by setting up a trust in your will or revocable living trust. Two common types of trusts are the minor’s trust and the family pot trust. Here is a summary of the key features of each.

UTMA Custodianship

  • UTMA is a law that has been enacted by almost every state.
  • It’s simple to implement. In your will or living trust, you leave the property to the custodian of your choice specifying that he or she receives the property as the custodian for the child under the Uniform Transfers to Minors Act.
  • The custodian has broad authority to use the property for the child’s benefit without burdensome court supervision.
  • If the child is no longer a minor at the time you die, he or she gets the inheritance outright.
  • The custodianship ends when the child reaches adulthood. In most states that is when the child turns 18 or 21, although a few states allow the custodianship to be extended to 25.
  • An UTMA custodianship is probably better to use for smaller gifts because of the young age at which the child gets unrestricted access to the property.

Minor’s Trust

  • A minor’s trust is used to leave money or other property to a minor, but in the care of a trustee until the minor attains a certain age.
  • The minor’s trust is created in either a revocable living trust or a will if you don’t have a trust, and it comes into existence on your death.
  • The trust may have only one beneficiary, so if you have more than one child, you may need separate trusts for each.
  • The trustee may use the trust property for whatever purposes the trust allows, usually for the child’s living, medical, and education expenses.
  • You choose how old the minor must be to get the property outright.
  • A minor’s trust is probably better for larger gifts because the property can be held in trust until the child is older and more mature.

Family Pot Trust

  • A pot trust leaves an inheritance to two or more children or designated beneficiaries in a combined “pot” in one trust, as opposed to separate trusts for each child.
  • The trustee has the discretion to take money from the “pot” for the needs of each child as they arise. The trustee may make unequal distributions to the beneficiaries as their needs may require. For example, one child may have greater medical needs than the others.
  • Once all of the children have reached a specified age (e.g., 18 or 21), the trust pot is usually divided into separate shares for each of the children.
  • This option works best if the children are close in age so the oldest child does not have to wait for an unduly long time to get his or her inheritance outright.

If you want to find out more, please contact us, we would love to help.

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