Planning for Minor Beneficiaries

Many people choose to leave a part of their estate to beneficiaries who are minors.  Some people leave assets to a minor beneficiary indirectly; they may have left their estate to their adult child, but the child predeceased them so that child’s share of the estate passes to that child’s children (that is, the grandchildren), who may be minors.

A minor is any individual under the age of eighteen.  The problem with leaving money to a minor is a minor cannot legally claim an inheritance.  The executor of an estate could not distribute an inheritance directly to a minor a beneficiary.  Someone would have to contact the surrogate for the county in which the estate is being administered and qualify as the guardian for the minor beneficiary.

A surrogate is an elected official.  Each county in New Jersey has a surrogate.  A surrogate is responsible for admitting Wills to probate, appointing trustees of trusts in Wills, and appointing guardians for minors.

While it is not difficult to be appointed as the guardian for a minor, the guardianship scheme is not the best method for managing a minor beneficiary’s assets.  A superior method of planning for a minor’s inheritance is a testamentary trust.

A testamentary trust is a trust in the last will and testament of the decedent.  A trust is a fiduciary relationship by which one party, called the trustee, holds the assets of another person, called the beneficiary, pursuant to the terms of the trust.  For instance, Mr. Smith might want to leave 25% of his estate to his minor grandson, James, aged 10.

In his Will, Mr. Smith leaves 25% of his estate to James, but Mr. Smith directs his executor to distribute the grandson’s share of his estate to his son, Mark, who is the father of James.  The terms of the Will direct Mark to hold James’s share of the estate until James attains the age of twenty-five.

While the money is in the trust, the assets in the trust are protected from any legal issues that James might have.  For instance, if James were in an automobile accident and were sued, his creditors could not reach the assets in the trust.  While the money is in the trust, Mark, the trustee, has a fiduciary obligation to manage the assets of the trust.  This means that Mark has the utmost duty of care to ensure that the assets of the trust are invested prudently.

Until James turns twenty-five, Mark can distribute James’s share to James or for James’s benefit.  Mark can use the inheritance to pay for health, maintenance, support, and education items for James.  So, for instance, if James’s college tuition bill is due, Mark could use the money in the trust to pay for James’s tuition bill.

When James turns twenty-five, then Mark distributes whatever money remains in the trust’s accounts to James.  James can then do whatever he wants with the remaining money.

The benefit of a trust is that Mr. Smith can state exactly how he wants his grandson’s money to be used.  Mr. Smith can also set whatever age he wants on the trust as a termination point.  If Mr. Smith wanted the trust to never end but to continue for the remainder of James’s life, he could say that.  Mr. Smith can also name the person he wants to manage James’s assets.  Maybe Mr. Smith doesn’t think Mark is the best person to manage James’s assets.  Mr. Smith could choose another person or a bank to manage James’s inheritance.

A testamentary trust, a trust in a Will, offers a person a number of planning opportunities.  If you are going to leave money to a minor individual (or an individual who suffers from a disability or a drug or alcohol problem), a trust is often the best option.

Comments are closed.