Our friends at Ellen Williamson Law, PC discuss how parents and grandparents often want to leave money to the children in their family, and naming a child directly in a will or on a life insurance policy seems like the simplest way to do it. It usually isn’t. An estate planning lawyer can help parents structure an inheritance so that assets are managed for a minor child and distributed according to the family’s wishes. Minors generally can’t own or manage significant property in their own names, so leaving an inheritance to minor children without a plan can trigger a court process, tie up the funds, and then hand everything over outright at 18. What Happens Without a Plan
When a minor inherits money outright, someone must be legally authorized to manage it. If the will, trust, or beneficiary designation doesn’t provide for that, a court typically has to appoint someone, often called a guardian of the estate or conservator. That route commonly involves:
- A court proceeding and its associated costs.
- Ongoing court supervision, including periodic accountings and, often, a bond.
- Limits on how the money can be invested or spent without court approval.
- Distribution of whatever remains to the child at the age of majority, usually 18.
Few parents would choose to give an 18-year-old unrestricted control over a large life insurance payout. Without a plan, that’s frequently the default.
Raising a Child and Managing Money Are Separate Jobs
Naming a guardian to raise a child doesn’t automatically give that person control over the child’s inheritance. The two roles can go to the same person or to different people. Some families prefer to separate them: a sibling who would be a wonderful day-to-day caregiver may not be the right person to manage investments, and splitting the roles builds in a check on both.
Custodial Accounts
Most states have adopted a version of the Uniform Transfers to Minors Act, which allows property to be left to a custodian for a minor’s benefit. A custodianship is simpler and cheaper than a court-supervised guardianship and can often be set up through a will or a beneficiary designation.
The drawback is what happens at the end. A custodianship terminates at an age set by state law, typically between 18 and 21 (some states allow longer), and the young adult then receives the funds outright. Income in a custodial account may also be subject to the kiddie tax rules.
Trusts for an Inheritance to Minor Children
A trust offers the most flexibility. It can be a standalone living trust or built into a will as a testamentary trust, and either way the terms can set whatever distribution ages make sense, such as a portion at 25, another at 30, and the rest at 35. A trustee can use the funds for education, health, and support along the way, and the trust can include protections if a beneficiary later faces divorce, creditors, or addiction.
The difference between the two structures is timing and probate. A testamentary trust comes into existence only after the will goes through probate, and the assets funding it pass through probate first. A living trust already exists, and assets properly funded into it during life don’t need to go through probate to get there.
Check the Beneficiary Designations
A trust or custodianship only helps if the money actually flows into it. Life insurance and retirement accounts pass by beneficiary designation, not by will. Naming a minor directly on those forms can bypass the plan entirely and push the funds into a court-supervised guardianship. Naming the trust, or a custodian under the applicable transfers-to-minors act, keeps the plan intact.
The Bottom Line
Good intentions toward children need a structure to work. Deciding who manages the money, when a child should receive it, and making sure every asset is directed into that structure keeps a court from making those decisions instead.