A very common legal issue that many clients overlook is the fact that a child cannot inherit property directly. Until the age of majority (18 in the state of California), a child cannot inherit property in his or her own name. An adult is required to be the custodian of and manage the property until the child is old enough to manage the property themselves. Our Sacramento estate planning lawyers can answer your questions about estate planning for minors.
How children typically inherit property
A child can inherit property in a variety of ways. A loved one could name a child as a beneficiary in their will or trust. A child could also receive a gift from the estate of someone after that person’s death. Finally, a child may be named as the beneficiary of a life insurance policy or retirement account. Our Sacramento estate planning lawyers can explain all the different options.
If a trust is involved, then the trustee is responsible for managing the child’s inheritance pursuant to the terms of the trust agreement. In any other case, the inheritance will be placed in a custodial account until the child reaches a certain age, pursuant to the state’s rules under the Uniform Transfers to Minors Act. When a child is the beneficiary of an account, the court will appoint someone to serve as guardian of the property and to manage the money until the child reaches the age of majority.
When children are named as trust beneficiaries
Trustees have specific duties when a child is named as a beneficiary of the trust. First, the trustee is required to obtain a tax identification number for the child’s trust so that a bank account or brokerage account can be opened in the name of the trust, for the benefit of the child. Once that is done, the trust assets can be distributed to the child, by the trustee, as the trust agreement directs.
Example of trust terms relating to a child beneficiary
There are a variety of situations that can arise when a child receives an inheritance through a trust. For instance, a trust may include terms that the trust assets will be distributed to the child once she reaches the age of 25. Until that time, the trustee can be given the authority to use the trust funds for the child’s “health, education, maintenance, and support.” This is a standard distribution provision. When the child reaches the specified age and the trust terminates, the child is then able to receive and manage their own inheritance.
California’s Uniform Transfers to Minors Act provisions
Every state establishes their own provisions with regard to the Uniform Transfers to Minors Act, including the time limit for a UTMA account which is established through a will or trust. In California, a UTMA account must end before the minor reaches age 18 to 25.
Gifts to minors require a guardianship for the property
When there are estate assets left to a minor and neither a custodial account or trust has been established to control that property, then the probate court will be required to appoint a guardian to manage the property until the child turns 18. This is how it works. If a minor child is named as the beneficiary of a life insurance policy, that child cannot inherit the life insurance proceeds until a guardian for the property has been appointed to manage the funds until the child reaches the age of majority. The same is true if a parent dies without a will, for example, and a minor child inherits their estate. The court must appoint a guardian for the property for each child (if there are siblings) who can manage the property for that child until he or she reaches age 18.
Being a property guardian
The guardian of property is very similar to a custodian or trustee. Their responsibility is to properly manage the inheritance for the benefit of the minor. However, unlike a trustee or custodian, the guardianship terminates when the child reaches the age of majority because the court will no longer have jurisdiction over the child. Furthermore, a guardian of property must file formal reports with the court accounting for how the funds have been invested and distributed. Custodians and trustees do not always have the same requirements.
Download our FREE estate planning checklist today! If you have questions regarding child inheritances or any other estate planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!