Leaving money or real estate to a child under the age of 18 without a guardian, requires careful handling, usually under the guidance of an estate planning attorney. The same is true for money awarded by a court, when a child has received property for other reasons, like a settlement for a personal injury matter.
According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.
Until the child reaches age 18, the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.
The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will and no trust?
A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets if there is no will. Another way a child might receive assets would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?
The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.
In Maryland, I have petitioned the Court for a Father to be the of his own child’s property, with full oversight.
Without an appropriate trust in place for the child, created in a will, a testamentary trust, or in a revocable living Trust, the probate court will be supervising. If no trust has been set up, then an adult will need to become a guardian, a person responsible for managing a child’s property. This person needs to apply to the court to be named guardian, and while it is frequently the child’s parent, this is not always the case.
The guardian is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the guardian will be liable for repayment. In many situations, the use of the money requires a Court to approve the expense before making it. The same situation occurs if the child receives money through a court settlement.
For Grandparents raising Grandchildren, What Do You Need? Making parents go through a guardianship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.
Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.
With a proper plan, this can all be accomplished without a guardianship of your grandchild.
Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”