Leaving an inheritance outright to a minor raises various concerns.
Let us consider some important concerns and possible solutions.
A frequent concern is that anything left to a minor may be taken away and used by a self-serving parent.
For example, consider a couple who names their now single daughter’s children as alternative death beneficiaries should the daughter not be alive to inherit.
The daughter’s parents are concerned that their ex-son in law, whom they distrust with good reason, will do his best to get control over any inheritances that pass to his children (from the grandparents).
How can this be prevented?
The best way to prevent this is to provide that the grandchildren’s inheritances will be held in further trust, or else, if the amount is relatively modest, be held at a bank in a custodial account, under the control of a trustworthy relative, friend, or private fiduciary as trustee or custodian, as relevant.
In the example, this would protect the inheritance against the grandchildren’s predatory father.
Another concern is that anything left to a minor will be wasted or abused by the minor as soon as he or she get their hands on it.
Leaving the assets in trust with express goals and uses allows the trust to purposefully further worthwhile goals.
For example, the trust may allow the trustee to pay for the child’s college tuition, room and board and perhaps a stipend so long as the beneficiary maintains at least a “B” average and carries a full course load.
The trust encourages the beneficiary to pursue college but prevents him or her from becoming lazy and uninterested in his or her own responsibilities.
Further concerns are “when”, “how” and even “if” the minor receive outright inheritance distributions.
Should inheritances be distributed in stages or all at once upon attaining a certain age? At what age should distributions occur?
There is no single answer. Some trusts distribute everything once the beneficiary attains a certain age (say, 21 or 25), others distribute in stages (e.g., a third at age 21, half at age 25, and the rest at age 30), and still other trusts hold everything in trust for the beneficiary’s lifetime.
Trusts that hold assets up to the beneficiary’s entire lifetime are usually discretionary trusts created to protect the assets from creditors.
Discretionary trusts give the trustee absolute discretion over if, when and how assets should be used for the beneficiary’s benefit.
Special needs trusts, for example, are completely discretionary trusts. The trustee may, but does not have to, use the assets to pay for the comforts of life that are not provided for by welfare benefits (SSI and Medi-Cal) while preserving eligibility for such needs based benefits.
Other discretionary trusts serve simply to protect the assets against the beneficiary’s own creditors. If the beneficiary cannot demand distribution of the assets then neither can his or her own creditors (limited special exceptions, including one for the unpaid child support owed by the beneficiary).
Such discretionary trusts allow the trustee to make purchases and payments on behalf of the beneficiary without directly depositing money into the beneficiary's own account, where creditors can get at it.
Lastly, what if minors depend on their parent’s or guardian’s estate being kept intact – instead of sold and divided – how can they be protected when their parent dies?
A so-called “family pot trust” allows the trustee to keep the parents’ estate undivided in order to provide any dependent children with a home.
Once the last dependent has reached a milestone (usually age 21 or 25) then the trust assets are sold, and typically divided equally amongst the adult children.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 870 S. Main St., Lakeport, California. Fordham can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com .