Estate planning can involve a number of complex factors which can arise through a variety of scenarios. What happens if I’m sick and can’t make medical decisions for myself? What happens to my farm or business if I die? One such scenario is passing on your inheritance to your minor children. If you make no plans, your child will inherit at age 18. Three factors to consider when planning your children’s inheritance are (1) what age you want them to gain control of the inheritance, (2) whom you want to manage the inheritance until they are of age, and (3) if the inheritance will interfere with any disability benefits.
If you were to pass away while your child was still a minor, at what age would you want them to have control of the money? Would they be ready to manage it when they become an adult at 18? You might also consider waiting until they are 21 or 25 to give them control. Another option is setting up a process by which the child receives percentages of the inheritance on certain birthdays, so that the amount of money they control increases with their age and maturity. In some cases, you may decide that it is best for the child to never have control of the inheritance. These questions are important to consider and must be decided on an individual basis depending on your situation.
Regardless of when you want your child to take control of their inheritance, you will need to name someone to manage the money until the child is old enough. Depending on the circumstances, this could be a custodian or a trustee. A custodian manages the money until they are 21. How they manage the money is determined by Minnesota’s Uniform Transfer to Minor’s Act, and you have no say in how the money is managed. With a trustee, you set out the terms for managing the money in a trust, usually in your will. The trustee can be a trust company or a friend or family member. This person may have to make some difficult decisions, so it should be someone you know well and can trust. The trustee will be relied upon to faithfully carry out your wishes and be prudent with the money you intend for your loved ones. The person you select must also be able to say “no” to your child if they want to use the inheritance in a wasteful way.
Another important aspect to consider when planning your estate for your minor children is the effect that inheritance can have on government disability benefits. The Supplemental Security Income (SSI) program and Medicaid (Medical Assistance in Minnesota) provides benefits to disabled individuals below a certain income and value of assets. Since an inheritance increases an individual’s income and assets, it may mean that that individual is no longer below the maximum level of income and assets needed to qualify for benefits. If you have a child who is disabled and qualifies for benefits, you will need to do further planning to make sure that they continue receiving their benefits when you die and pass on their inheritance. One possible solution is placing the inheritance in a special trust that provides benefits to your child but will not impact their benefits.
As with other types of estate planning, preparing an inheritance for a minor child depends on many complex factors. These include the laws of the state in which you live, the unique situation of the child, and your individual preferences. The best way to handle this is to reach out to an estate planning attorney who can take all these factors into consideration and prepare an estate plan that efficiently preserves your wealth for those you love most.
To learn more about the estate planning team at Blethen Berens, please visit our website. You can also reach them by calling our Mankato office at 507-345-1166 or our New Ulm office at 507-233-3900.