Protecting your Future:Trust is best way to leave assets to a minor

Generally, parents leave their assets to their children, thinking that the children will then take care of their own 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 individual retirement accounts, stock funds, life insurance policies and annuities.

Probate proceedings

Although well-intentioned, inheritances to minors, in the absence of a trust, must go through a probate court proceeding upon death. Minors, those under 18, cannot hold property in their own names. In the probate proceeding, the judge appoints a law guardian to protect the minor's interest until age 18, at which time the beneficiary receives the asset.

For example: Joe dies and most of his estate goes to his wife through joint ownership of their assets. He also wants to benefit his 12 grandchildren. He has a bank account worth about $50,000 in his name alone. The rule is, if you die with an asset in your name alone, it goes through probate court. Then your will is used.

Joe's will states the specific bank account goes to the 12 grandchildren. The grandchildren range from 2 to 16 years old. He appointed his daughter as executor. She hires a lawyer to represent her as executor in the probate proceeding. When each grandchild turns 18, he or she will receive his or her share of the inheritance. The judge in the probate proceeding appoints law guardians for the grandchildren. The law guardians are paid for the legal services from Joe's assets.

It is hard to believe that Joe envisioned or wanted this level of bureaucracy.

The same court requirements would apply if Joe had named the minor grandchildren as beneficiaries on life-insurance policies or other assets.

Impoverishing beneficiary

Another possible disadvantage of naming minors as beneficiaries is impoverishing a beneficiary. For example, if someone dies and named a spouse and three minor children as equal beneficiaries on a $400,000 life insurance policy, the spouse will receive $100,000. The other $300,000 for the minor children must be held for them, through a court proceeding, until they reach age 18. Such a result might cause hardship to the surviving spouse, who needs the money now.

The best way to leave assets to a minor beneficiary is to create a trust. You leave the directions for the use of the funds, such as for health, education, maintenance and support until age 30, and then the funds are paid to the beneficiary. You appoint a trustee to manage the trust assets. No court proceeding is needed. You may also name the trust for the child as a beneficiary on other assets. The good intention to benefit minor beneficiaries must be met with thoughtful planning.


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