When a minor is a beneficiary, they do not legally own their property until they reach the age of majority. What happens when you leave an inheritance to a minor beneficiary depends on the nature of the gift and the laws of the state.
Minors as Beneficiaries of Direct Gifts
When property is directly left to a minor beneficiary, such as joint ownership of property or a payable-on-death account, the minor will not have the legal authority to control it due to their age.
The same rule applies to inheritance received through a will or from an estate where a living trust document was not properly crafted, thus failing to meet its conditions.
In this case, state law determines who will receive the decedent’s property and in what amount. Typically, close relatives inherit the property. The property will only go to more distant relatives if there is no spouse or children.
What happens to the minor’s inheritance in these situations depends on the laws of the state where the minor resides and the value of the gift.
UTMA, UGMA, and 529 Accounts
If the value of the minor’s shared property is not substantial, generally $20,000 or less, state law may allow an interested adult, such as the minor’s parent or grandparent, to request placing the minor’s inheritance in an account created under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA) in the state.
These accounts can hold funds for the child until they reach the age of majority – 18 in most states, but sometimes 21. Additionally, some states allow an interested adult to request placing property in a 529 account for the benefit of the minor. This is a tax-advantaged savings plan to help pay for future college costs or private primary and secondary school fees.
In some states, a parent may personally manage very small amounts, such as gifts under $5,000 from a grandparent or other adult, on behalf of their minor child. In these cases, the parent would not need to use a specialized UTMA, UGMA, or 529 account.
Wills for Minors as Beneficiaries
If the value of the minor’s combined assets is greater than what can be placed in a UTMA or UGMA or 529 account, or if state laws where the minor resides do not permit these types of accounts for inherited assets, a court-appointed guardianship must be established to benefit the minor.
The personal representative appointed by the court or the executor of the estate will submit a request to appoint a guardian for the minor to manage the inheritance when a probate is opened. If there is no probate, such as if the named minor is a beneficiary of a life insurance policy or retirement account, an interested adult can submit the request.
The interested adult could be an aunt or uncle or could be unrelated. The important thing is that they must be a trustworthy person.
The judge will then decide who will be appointed guardian for the minor after hearing the testimony of all interested parties, sometimes including the minor if they are above a certain age, typically 12 or 13. The exact age is determined by state law.
In most cases, the child’s parent is chosen as the guardian unless both parents are deceased or their unfitness or incapacity to perform the duty is established.
The appointed guardian will manage and control the minor’s inheritance until the minor reaches adulthood. Parents leaving an inheritance for their minor children can avoid much of these difficulties by appointing a guardian in their estate planning.
Conclusion: Maturity
Even if the child is of legal age to be a beneficiary (whether that is 18 or 21 years), the child may not have the maturity to manage a large sum of money. For this reason, many parents in their estate planning create wills that do not allow the child access until they are older. For example, children with addiction issues that may make them likely to squander money irresponsibly are also candidates for this type of plan.
Questions
Frequently Asked Questions (FAQs)
How old does the beneficiary need to be?
You can leave an inheritance to whomever you want. There are no age restrictions. The only restrictions relate to when a minor beneficiary can take control of the inheritance. In some cases, a minor beneficiary may not have immediate access to the property upon your death, but they will own it.
Can a parent spend their child’s inheritance?
Parents are not required to leave an inheritance to their children. If a parent chooses to leave an inheritance to their child, they can also decide to revoke that inheritance and spend the money as they wish.
Sources:
Fidelity. “Children.”
U.S. Department of Health & Human Services. “Intestate Inheritance Rights for Adopted Persons,” Page 1.
Social Security Administration. “SI BOS01120.205 Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA).”
Utah Courts. “Conservatorship of a Minor.”
Source: https://www.thebalancemoney.com/what-happens-to-the-inheritance-of-a-minor-beneficiary-3505140
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