“Only a little over half (56%) of American parents have a will or living trust document, according to a new Caring.com survey of adult children. Nearly one-third of parents (27%) do not have estate documents in place and 16% of adult children are unsure if their parents do. Of those that do have a will, 40% have updated it in the last 1-5 years. Twenty-four percent of adult children don’t know if their parent’s will has ever been updated.”
From a survey that was conducted by Princeton Survey Research Associates International (PSRAI)
As a part of my elder law and disability rights practice, I provide estate planning and probate services to families, and over the years I have experienced a marked increase in the amount of children under the age of 18 or young adults under the age of 25 left to handle the probate affairs of their deceased parent.
Many times the parents, grandparents and the children left with the intestate probate of a loved one has no idea what property is owned, no idea of what bills are owed, no idea of where to bury/cremate their loved one, no idea of how to close out a life. The death disrupts the minor child or young adult’s life on so many levels. It can cause conflicts to develop within the family concerning where the child or young adult will live. Depending on how the death occurred there may be police, social workers, foster parents, guardians, Children in Need of Assistance (CINA) attorneys, judges, the press, and/or court appearances.
When drafting a will or trust an individual may leave property to a minor child and should even include language in the document that anticipates unborn children. The age of the minor child only becomes a factor when it is time for the minor to legally take possession of the property. In some states the age is 18 in others it is 21. Under the law, it does not matter whether the minor child has one parent that is still alive, the parent does not have the legal right to receive the minor’s property. Most states will allow distribution of a small amount (less than $5,000) to a parent to be held in a restricted account until the child attains the age of majority.
No one knows the day or the hour of their death, however, it is certain that it will come. In this article I will discuss the many ways that you may leave property to minor children and young adults. It grieves my spirit when children lose large parts of their inheritance because there was no estate plan or an estate plan that did not address leaving large sums of money to minors or young adults.
In most cases, if a beneficiary designation form, will or trust instrument lists a minor child as a beneficiary a guardianship must be established. The guardianship requires a petition be filed and an appearance in court; in most jurisdictions if the child is over the age of 14 the court will require the child to attend the hearing and testify. All liquid assets are placed in a restricted account and the guardian must petition the court to distribute or sell any of the minor’s assets. Once the guardianship is established there is an annual fiduciary report that must be filed with the court until the minor reaches the age of majority.
If the will or trust document names a guardian or guardian ad litem, that person will assume control of the minor child’s property/inheritance. Most courts will honor the wishes as expressed in the decedent’s documents. If no guardian is named the probate court has wide discretion in naming the guardian, it does not necessarily have to be the child’s biological parent(s).
To avoid a guardianship parents and grandparents with minor children may use the Uniform Transfer to Minors Act (“UTMA”) for their state. The UTMA is a model law created by the National Conference of Commissioners of Uniform State Laws, under the UTMA a custodian may transfer any kind of property, real or personal, tangible or intangible, to be held for the benefit of the minor child. Other transfers such as payment of debts and transfers of property from trusts or estates may also be done under the provisions of the UTMA. To create the transfer simply state that you are leaving the property to a named adult as custodian for the minor child under the provisions of the Uniform Transfer to Minors Act.
Many parents and grandparents wish to provide for children under the legal age of majority or unborn children and they are concerned that the child might be too immature to receive a large sum of money or property at the age of 18 or 21. In order to manage the distribution of property a trust may be created under your will to pay for educational, medical and other needs of a minor child. The trust may also provide distributions when the minor achieves certain benchmarks such as graduating from high school, enrolling in college, starting a new career, getting married or purchasing a home. Another alternative is to tie the minor’s distributions to their age. The child may receive a small amount every year until they become older, then they may receive larger distributions when they attain the ages of (e.g., 25, 30, 35. 40). This sometimes is done by distributing trust income while the child is younger and then begin distributing the principle when the child is older.
Special Needs Trust
Parents and grandparents of a minor child who has a disability should consider creating a Special Needs Trust (“SNT”), which are sometimes referred to as Supplemental Needs Trust. A SNT is drafted pursuant to federal and state law to allow property to remain available to assist a child with a disability who may be receiving or may receive in the future, Medical Assistance (or Medicaid), Supplemental Security Income (SSI), waiver services as well as other public benefits. If the parent or guardian of a special needs child dies unexpectedly their estate will have maximum flexibility in planning for the minor child. The SNT will be able to accept gifts from other relatives on behalf of the minor child, receive life insurance proceeds, own a home, own a vehicle, and provide care management for the minor child and continue into adulthood.
When parents and grandparents have large amounts of property, they may want to consider creating an irrevocable trust so that upon their death they can minimize the taxes that may be due to transfer assets to the minor child. This trust is generally drafted by consulting with your accountant because once it is created it cannot be changed. There can be language in the trust to establish how and when the distributions will be made to the minor.
Discretionary Needs Trust
Some parents and grandparents may need to consider the use of a discretionary needs trust if they have a young adult with undiagnosed issues such as substance abuse or emotional/mental issues. The use of a discretionary needs trust would avoid distributing money outright to anyone that may not be able to manage their affairs. The trust would be able to pay rent, utilities, insurance premiums or provide the individual with clothing, food and shelter.
It is incumbent upon the parents and grandparents to prepare documents, discuss and share their estate plan with their family. “Life is filled with swift transitions, naught on earth unmoved can stand” is a stanza in an old hymn, and if you have minor children or young adults, you need to prepare estate planning documents sooner than later. Under the law, a minor may not inherit property, and even though a young adult may be able to inherit property they may not be emotionally able to handle the responsibilities involved with selecting a grave site, burying and closing out their parent’s life.