Families with Minor Children, Guardians

What are the best ways to give an inheritance to your minor kids?

This is a very important blog post. I probably get asked this question more than any others, so thought I would address it for others that may also have this question.

First, keep in mind that custody of your kids, and custody over their “property” or money are two different things. This blog addresses the property or money part. For custody of the “person,” please see my Kid Care Package blog for the documents you will need, but you may also appoint permanent guardians of your children in a Will.

A child under 18 years of age cannot inherit property in their own name. Rather, an adult must manage that property for them until they can manage it for themselves. Thus, here are some options for a parent to consider:

1.Use your Will to Name Guardian

You may name a property guardian in your Will. This person must then be approved by the Court, thus, it is very important to choose someone with no criminal background, no crimes against children and who doesn’t suffer from alcoholism or any similar problem. A property guardian does not take title to the property. Rather, the guardian manages it WITH court approval. If the parent does not name a guardian, the Probate Court will.

There are many drawbacks to this option. Appointing a guardian in your Will or via the court initiates a process with strict check-in and formal accounting requirements for the guardian as to the status of the funds. But most importantly, the guardianship terminates at 18 which is a very young age for a child to inherit. Thus, it is seems preferable for the parents to set up another plan involving a Trust, rather than asking the courts to take over.

2.Form a Trust

You may set up a trust through your Will (testamentary trust), to be effective if and when needed, or you may set up a living trust to be effective immediately. Either way, you will name a Trustee to act as a custodian of the property and handle investments, disbursements and the such. You may set up a trust for each child, or set up a children’s trust to use for all of your minor kids. This funds in this instrument may be protected from creditors, depending on how it is drafted. With a trust, the parent can set guidelines for the Trustee to follow to help provide for and raise your children. There are many different provisions which can be put into place to make sure your child progresses in life, and to ensure funds are not received too early, before the child can handle the management of funds. Disbursements can be much later, such as 25, 30 and older. Of course, the longer the life of the trust, the more trust fees, but that concern needs to be balanced with the possibility of your children obtaining funds too early in life.

3.Name a Custodian under the Florida Uniform Transfers to Minors Act

This is a good idea for people that want to create “trusts” with relatively small amounts of money. Many grandparents take advantage of this option. This Act is set forth in the Florida Statutes, thus, there is a precise set of rules within which to comply. You create this by opening an account at a bank for the benefit of your minor child. It is a good idea that the “custodian” you name is a different person than the person who opens the account because if the custodian/creator are the same person, and this person dies before the account has been transferred to the beneficiary, the value of the account is deemed part of the creator’s gross estate for federal estate tax purposes (but keep in mind that estate tax is not an issue for most people unless you have a gross estate in excess of $5 million). This account is not protected from creditors. The money in the account is placed in a custodial account until the child reaches 18 or 21 (check with the bank for specifics of the age as there are proposals to change the age of termination to 25 years of age). Again, keep in mind that small amounts are recommended so your child does not inherit too much, too young.

4. Other Options

There are other options such as 529 plans and life insurance. Talk to a financial advisor or insurance advisor to learn more about these types of options, and make sure they are consistent with your estate plan.

Hope that was helpful.

-Lori

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