Leaving Assets to Minors
Generally, parents leave their assets to the children thinking that the children will then take care of their children. Occasionally, parents want to bypass the children, either wholly or partially, and leave an inheritance directly to the grandchildren.
Inheritances to minors come in different varieties, such as bequests in wills and as beneficiaries or contingent beneficiaries on IRA's, investment accounts, life insurance policies and annuities.
Although well-intentioned, inheritances to minors, without a trust, must go through a probate court proceeding on death. Minors, those under 18, cannot hold property in their names. In the probate proceeding, the judge appoints a legal guardian to protect the minor's interest until age eighteen, at which time the beneficiary receives the asset. The expenses of the legal guardian will be paid out of the minor's bequest. Generally, the legal guardian will use the funds for the child's health, education, maintenance and support having regard to any other assets or resources of the minor known to the guardian. Again, ready or not, the legal guardian must turn over the assets to the minor at age eighteen, a tender age in today's world.
A better plan would be to leave assets to a minor beneficiary by creating a trust. You leave directions for the use of the funds, distribution at a stated age, such as thirty years old and, in the meantime, the trustee, a person you choose instead of a legal guardian chosen by the court, uses the money for the purposes enumerated above, either by giving money directly to the minor or by paying bills on their behalf.
Trusts avoid probate court proceedings entirely for the trust assets. You either put assets into the trust while you are living or, alternatively, you may name the minor's trust as death beneficiary on bank accounts, investment accounts, IRA's or the retirement plans, annuities and life insurance policies.
The intention to benefit minor beneficiaries must be attended to with thoughtful planning to avoid having the good deed punished.