The most frequent mistake I see in “do-it-yourself” Wills are clients who leave assets to children who are minors or under the age of 18. While parents want to leave their estates to their children and provide and care for them in the event they pass, naming your children as your beneficiaries may not be the best way to provide for them if they are minors.
What happens if you leave assets to someone who is under 18? Let say Bobby and Suzy are married and have one child, Stacey, who is 5. Bobby and Suzy go to a DIY website and make their own Will, leaving everything to each other and then Stacey. A month later Bobby and Suzy get into a car accident. Although Bobby and Suzy were young, between their house, life insurance, and retirement accounts, Stacey has just inherited one million dollars. Bobby and Suzy’s Wills had no provisions for minor beneficiaries. The court will now step-in and appoint a guardian and conservator for Stacey. A judge will listen to the advice of a guardian ad litem, who will make a recommendation on who is a responsible party to be guardian (who physically cares for Stacey) and a conservator (who manages Stacey’s money). The conservator and guardian could be the same person, or could be two different people. The person appointed as conservator then has to submit an inventory and financial plan to the court that explains how much money Stacey has, how much is needed for her care, and how they intend to manage that money for her. Once the court approves the financial plan, the custodian must provide a financial report to the court every year. Courts are more conservative on investment options and are restrictive on how funds for minors can be managed. The court process also is time consuming and costly. Lastly, the conservatorship will terminate upon Stacey attaining the age of 18. With proper management and investment, it is possible Stacey’s assets will grow and she could end up with over a million dollars being distributed directly to her at age 18.
Some Wills have a brief provision for minors that creates a Uniform Transfers to Minors Account, or UTMA. This type of account avoids the need for a court appointed custodian if the Will appoints someone to manage the assets. An UTMA account cannot exist past the age of 21. While having assets distributed at 21 is better than at 18, that is still a very young age for a child to suddenly have access to large amounts of money. Also consider that a large amount of money is very different for a 21-year-old than a 30-year-old, so while your estate may not seem that large to you (with mortgages, car payments, insurance premiums, etc.), to a 21-year-old that money would be like winning the lottery. See our article on Small Estate, Big Problems: https://grissomlawfirm.com/small-estate/.
The best provision would be a Trust for minors that can last for a child’s lifetime if necessary. The trust can list specific reasons for distribution: i.e. used for education, health, maintenance and support only. A trust has the power to name someone who will manage the assets without court intervention. There is no court oversight or reporting. A Trustee has more discretion than a court appointed custodian on how the assets are managed and invested, allowing for more growth and individualized administration.
Unlike Bobby and Suzy, not all clients have minor children and therefore think an underage trust is useless. But consider, if you leave everything to your adult children, and if something happens to one of them, those assets will likely pass to their children (your grandchildren) who may be under age 18. Just because you do not specifically intend or plan on leaving assets to a minor, circumstances may lead to a minor receiving an unexpected distribution.
Thinking about all the possibilities, contingencies, and proper planning is an attorney’s job. While legal documents may sometimes seem overly long and complicated, there are good reasons for those “extra” provisions that don’t seem to be necessary. Call us today at (678)781-9230 to schedule an appointment.
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