Part 5 of a series breaking down the process of helping clients set up their Wills by breaking the issues down into smaller, individual topics, enabling the adviser and client to take the necessary steps and get the plan moving.
Once the decision has been made to have the inheritance pass down to minor children or grandchildren, how that inheritance is to be handled has to be addressed. Leaving a car to a two-year old, or entrusting an heirloom item of jewelry to a teenager may not be the most prudent of ideas. Leaving personal property to a minor can be problematic for this very reason. The fiduciary for the estate is responsible for giving the property to the parent (or guardian) of that minor, with the expectation that the property will not disappear before the minor is able to receive it. The treasured baseball card collection could be missing the Ty Cobb rookie card when the distribution is finally made!
It would also be inconvenient, at best, to leave real estate to a minor. A guardianship would likely need to be established to hold the property, although it would be possible for the guardian to get a mortgage on the property if funds were needed for the care of the minor.
In each situation, a better solution might be to handle this sort of distribution through a trust. We’ll be discussing that option later in our series.
Leaving cash or investments to a minor is a bit simpler. Investments can be sold or set up in a custodial account, and cash can always be used to create a Uniform Transfers to Minors (UTMA) account. Either way, the gift is protected for the minor until reaching majority (or the age indicated in the UTMA contract).
But what about gifts going UP the line to parents?
Young people without children often leave their estates to their parents. That makes some sense, of course: returning some of the resources to the parents who had expended their own to raise the child. This approach, though, may not be what is best.
Consider that, at the death of the young person, all of his/her property will go through the probate process. Then, when the parent dies, it all happens again. And, if the person is fortunate enough to have a large enough estate to incur estate tax, that property would be subjected to the taxes twice. The person might be better off by-passing his/her parents and giving the property to siblings or the children of siblings.
Also consider that the parents may be in a nursing home, on Medicaid, when the person dies. An inheritance could disqualify the parent from receiving public support. Additionally, if the parent lives long enough, the inheritance from the child could well get eaten up by the cost of the parent’s care, leaving nothing for the person’s siblings. Now, again, that may or may not be the person’s concern, but it is certainly something the client has to take into consideration when establishing his/her plan.
In our next topic, we will discuss choosing who should be the Executor of the estate.
Our attorneys are always ready, willing and able to meet and discuss all of those questions, help you articulate your plan and goals, determine the best plan to accomplish them, and then implement it. You will find that, by taking those small bites, the problem that used to lead to procrastination and uncertainty has been addressed and resolved. Learn more about Mansour Gavin’s Estate Planning & Probate group.