While families are working on their financial plan, life happens. They are saving for retirement; they buy a new house; they update their insurance policies—all too often, estate planning is put on the back burner. Families say they will go back to the estate plan and fill in the gaps, especially if the age of the beneficiaries was incorporated into the plan. But, just as life happens, so does death. An unexpected death can result in a situation where the estate planning documents in place do not apply to the current situation—specifically when minor children inherit money and property.
There are also many other circumstances that result in children inheriting property. Wealthy couples who feel their own children are making good money may desire to leave their assets to their grandchildren. There are also times when parents will have a falling out with their child and leave everything to grandchildren in their Will. If the Will did not specify that the deceased’s child was disinherited, the child could come back and contest the Will, claiming to be the rightful heirs.
Generally, when a minor child inherits money or property, the courts will appoint a guardian or conservator to manage the assets. Aside from the legal hassles a property guardian may have to deal with, a bigger problem often occurs once the child reaches the age of 18 and receives their inheritance. Very few 18-year-olds have the maturity to handle a significant amount of wealth.
When leaving assets to a minor, it is wise to consider using trusts. Assets held in a trust can prevent the child from spending foolishly. When stripped of all the legal jargon, trusts are simply an entity into or through which a person, the grantor or donor agrees to transfer assets to a beneficiary, or multiple beneficiaries, who then receive the assets as stipulated in the governing trust document. A trustee manages the trust assets and ensures the stipulated terms of the trust are faithfully carried out. The trustees are the legal stewards of the trust property, but they are obliged to manage the property for the benefit of one or more beneficiaries.
Trusts also can be used to transfer assets in installments or at a later date. For example, assets could be left for someone who may not be mature enough to handle an inheritance. By stipulating that trust assets can only be used for the health, education, maintenance and support of the beneficiary until a specified age, the beneficiary could benefit well into adulthood.
Placing assets into a trust before death will often allow families or individuals to distribute property without coming under the jurisdiction of a lengthy probate process. If a dispute arises, a trust established prior to the death of the grantor can be more difficult to challenge than a Will. A trust can be structured to fit your family situation, so that your wishes for the dispersion of your wealth are handled efficiently and properly. Trusts can be revocable or irrevocable, and they can be created during one’s life or at death in a Will or another trust. However, trusts created at death in a Will are subject to probate court jurisdiction.
Trusts are very powerful tools designed to help families handle a variety of issues like reducing estate taxes, avoiding probate court or transferring assets. To structure a trust for your situation, an experienced estate planning attorney can provide the proper legal guidance.
If you have questions regarding how your estate plan is a foundation element in your overall financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.