A minor generally doesn’t have the right to manage his or her assets, including an inheritance.
But sometimes a minor child becomes the beneficiary of a sizable family inheritance. That can occur because a parent dies without a will or trust, leading to an unavoidable direct inheritance by the child. If a minor is chosen as a beneficiary of a retirement account or life insurance policy, many challenging issues can arise. A minor is not legally allowed to take control of inherited assets left directly to him or her. Instead, an adult or financial institution has to be appointed to manage the estate until the minor turns 18.
In essence, that means the estate must be overseen by the probate court, a time-intensive and costly endeavor, which often requires the guardian to file annual accountings. The court then evaluates expenses and investments to be sure the assets are managed properly. Most spending from the minor’s assets must be authorized by the court. The court typically aims to protect the minor’s assets until he or she reaches age 18.
Meanwhile, any fees to administer the estate also reduce the value of the minor’s inheritance over time, as that is the source from which the fees are typically paid. Finally, at age 18 all estate assets will be distributed directly to the minor, a result that many families may not like.
We recommend that parents establish living trusts which can provide streamlined administration of their assets during their disability or death and trusts for the benefit of children after both parents die until children are ready to deal with the assets responsibly. Such trusts can protect against children’s creditors and divorcing spouses and can even be designed so that substantial sums pass for the benefit of future generations without estate tax.