Leaving Money to Minors: Challenges and Tools
Rilus Law founder and managing partner, Attorney Rilus Dana, and his three sons.
Money holds significance when it serves a purpose, and few endeavors embody a more profound purpose than securing the future of our children. From the earliest stages of their lives to the moment we pass on, the responsibility to provide for them resonates deeply within us. Yet, the unfortunate reality is that many parents overlook the crucial step of preparing for a future where they may not be present to support their minor children financially.
This is where estate planning emerges as a vital lifeline. Strategizing your estate during your lifetime ensures that you continue to safeguard your children's future, offering them the necessary financial support should unforeseen circumstances intervene and you're no longer able to provide for them. In this discussion, we delve into the critical realm of leaving money to minors, an essential facet of estate planning. What challenges lie in leaving assets to minors, and what tools exist to establish a secure inheritance for your children? Join us as we explore these questions, shedding light on the complexities and available solutions in this pivotal aspect of securing your family's future.
Challenges of Leaving Money to Minors
Of all the things we leave behind when we die, our children can be one of the most complicated ones to manage. For one, children are not properties that you can just bequeath to any beneficiary. You need to consider carefully who you want to take your place as their guardian. Children need the right guardian who will provide the love, support, protection, and guidance they need to grow into exemplary adults. Thus, leaving money to minors can have the following challenges:
Children cannot inherit money and property without a custodian.
Only until they reach a certain age, that is. In some states, the minimum age is 18, others 20 or 21. While underage, minors are considered unable to manage money or any property. However, they still need financial support to provide their needs. So, the law requires a guardian, conservator, custodian, or trustee to manage the assets until they reach adulthood.
Selecting a guardian can be tricky.
If you don’t assign someone to manage your child’s inheritance, the courts will upon your death. Selecting a suitable person for this role means considering several factors such as knowledge, character, commitment to your wishes, etc.
Children have changing needs.
The money you set up today must be adequate to provide funds during the period until your children reach adulthood. A child of 10 needs different financial support than that of a 15-year-old. Children will need more money when they go to college, etc. So, leaving a lump sum of money today is great, but it’s better to have a fund that also grows during the time your minor children are growing up.
Legal age doesn’t always mean responsible age.
Even when minor children reach their legal age, they can still be irresponsible with their finances. (Ask yourself, how well did you handle money when you were 18?) If they are incapable of managing their inheritance, they will potentially waste the assets you worked so hard to build today. With estate planning, you can take steps to ensure that your beneficiaries, minors or of legal age, will put their inheritance to good use.
Tools Used for Leaving Money to Minors
Parents can leave money to their children upon death using the following estate planning tools:
1. Payable On Death (POD) Accounts
A POD account, also called a Transfer On Death (TOD) account, is available for most banking accounts. It’s simply a form you fill out at your bank naming the beneficiaries to transfer the account’s funds to after your death. The account will not transfer the money until the beneficiaries are of legal age and you cannot make instructions on how they use the money. POD accounts provide the option of growing your money by using stocks, securities, and similar forms of investments.
2. Life Insurance
Life insurance is another helpful tool for leaving money to minors without a will. Similar to POD accounts, a life insurance policy is easy to set up and will not release the benefits until your minor children come of age. A great upside of life insurance is that the benefits that your children are entitled to are not subject to taxes when they receive them.
3. Individual Retirement Accounts (IRAs) and Pensions
IRAs and pension funds allow you to assign your minor children as beneficiaries and receive the funds upon your death. In an IRA account, the account owner’s child can receive a limited amount of money from the account before they reach their legal age. Other minor beneficiary rules may apply to other pension accounts.
4. Wills
A will is a legal document that lets you leave money to minors with your instructions on its use. This document allows you to assign two very important roles for your children. First, you can name a guardian who will act as their caregiver. This person can also act as the conservator managing their assets, or you can name a second person to handle that role separately. Once your children reach their legal age, they will receive the remainder of their inheritance completely.
5. Trusts
A trust is a legal entity that holds the money, properties, and other assets of your estate. In a trust, you have more freedom to set the terms related to the inheritance of your minor beneficiaries. You can assign a trustee who can manage the trust and abide by the rules you set while you are living. Additionally, you can set up the rules for managing your assets to grow your funds or preserve your properties. Thus, your trust can maintain adequate funds to support your beneficiaries at any stage until they receive their full inheritance. A trust also allows you to make instructions on how your minor beneficiaries use their inheritance and prevent mismanagement.
Empower Your Legacy: Secure Your Children's Future with Rilus Law's Expertise!
Choosing which tool to use to leave behind money for your minor beneficiaries depends on your specific situation and needs. You can even use two or more of these tools together, thus ensuring full support for your beneficiaries and protection for your assets.
Our children are our greatest legacy. Thus, we must ensure that we can continue to support them even if we die while they are still minors. Also, we must ensure that the money and material things we leave them are protected and put to good use. Let Rilus Law accomplish these goals for you. Give us a call to schedule a free consultation and begin planning for your children’s future today!