If you have children, are you planning on them inheriting property in your estate after your passing? Although there is no rule prohibiting a minor as an heir in a Will, many people are unaware that children can not inherit property before they turn 18 years of age.
If you pass away before one of your children becomes an adult, though, there are steps you can take to ensure their future is secure. To help you make an informed decision, here are some of the options you have at your disposal to pass on assets and property to a minor.
Protect Your Family With Proper Asset Management
If you do not arrange any asset management for your minor children, the court will appoint someone to be their guardian. In most cases, the other parent is appointed as the guardian. However, this is not always the case. To ensure your wishes are followed, it’s important to have a plan to protect your family when you die.
Options For Providing For A Minor In Your Estate Plan
In North Carolina, there are three common ways to provide for minor children in your estate planning. Depending on your situation, one of these three is likely the best fit – it’s important to consult with an experienced estate planning attorney to choose the one that best suits your situation.
1. General Guardian or Guardian Of The Estate
One way you can protect your child’s inheritance is by using guardianship supervised by the court – you can choose a guardian in your Will for your child. When you pass on, the court will appoint the person as your child’s guardian. They will have the responsibility of looking after the property and any other assets until the child reaches 18.
The guardian has accountability to the court to ensure they are managing the inheritance properly, and then the inheritance gets distributed to the child according to your estate plan when they become an adult.
There are multiple types of guardianship, including Guardian of the Person, Guardian of the Estate, and General Guardianship, which encompasses both. An experienced estate planning attorney can look with you at your situation and help you determine which option is best for your situation.
2. Custodian under Uniform Transfer to Minors Act
If you want to leave an inheritance to a minor but you are concerned about it being mismanaged, then you should consider using the Uniform Transfer to Minors Act (UTMA). The act is ideal for property inheritance, which is usually $20,000 or less. The Uniform Transfer to Minors Act (UTMA) is a law that applies in every state. The act allows you to choose a person who will manage the property you leave your child.
The UTMA is a law allowing anyone to put their property inheritance into a custodian’s account. If you die when your child is under age as set by the state, the custodian manages the property. You only have to name a custodian and the property you are leaving to a minor. You can leave such information in your will or when you name a beneficiary on the insurance policy.
The custodian is responsible for managing the minor’s account. The account is kept secure at a financial institution, and any money in the account can be used for the child’s clothing, food, and other necessities. The amount that remains will be distributed to the child once they become an adult. In North Carolina, the UTMA custodianship will end when the beneficiary reaches 21.
3. Set Up A Testamentary Trust For Your Child
Setting up a trust is one of the ways you can pass land or other real property to your children. Trusts are relatively easy to control and can bypass the costly probate process. When you set up a testamentary trust, you can leave instructions on when the funds will be distributed to your child as well as how they will be spent. When establishing trust for your child, you name a trustee in your will, someone who will handle the property until your child reaches the age you have specified.
Although your child can receive property from the trust when they turn 18, you can specify any age you want as the end date for the trust. At that date, the trust, along with any income generated from it, would be passed along to your child.
Common Mistakes When Passing Property To A Minor
Although there are several good options to protect your children in your estate planning, there are some common mistakes and pitfalls to be aware of.
Choosing the right trustee is critical – you may have a family member that has a great relationship with the child, but they may not be the right person to be a trustee.
In addition, you need to review the trust periodically to make sure it still expresses your wishes properly and reflects current circumstances in your and your child’s life.
Contact An Experienced Wilmington Estate Planning Attorney
If you are trying to figure out how to best protect your children after your passing, David Anderson and our team here are ready to help talk through your options. Call us today at 910-509-7287 or fill out our contact form to schedule a consultation today.