Knowledgeable Estate Planning Attorneys for Clients in California
In California, a minor child can’t inherit property in his or her own name. That doesn’t mean you can’t bequeath your assets to minor children, it just means that the child or children in question won’t be able to own the property until he, she, or they come of age. If you leave assets to a minor child, you need to do so properly so that those assets are taken care of for him or her until he or she is old enough to take possession of them.
Bequeathing Assets to Children in Manhattan Beach
The Uniform Transfers to Minors Act (UTMA) is a law that’s been adopted in all but two states, Vermont and South Carolina, in order to govern the transfer of property to a minor child through a will or living trust. To properly transfer property to a child under UTMA, you will need to choose a custodian to manage the property until the minor reaches a named age between 18 and 25.
In order to take advantage of this law, you would put a line such as this in your will: “I leave a gift of $50,000 to Allen Smith, as custodian for his daughter, Jane Smith, under the California Uniform Transfers to Minors Act, to age 18.” This would authorize the law to give the money to Allen, who would be required to hold it for his daughter, Jane, until she turns 18, at which point she would be able to take control of the property herself.
As custodian, Allen would have the right to collect the funds or the property so named, as well as to hold or manage them. He would be allowed to invest or reinvest the property without approval from a court, as long as he acts prudently and honestly. The money will be held in an UTMA account at a bank or brokerage agency, and could be used for Jane’s benefit to pay for her education, needs, or travel expenses.
When the minor reaches the specified age and the custodianship ends, however, he or she can take the property and use it for whatever he or she pleases. You can’t place restrictions on how the minor may use the money once he or she has received it.
Even if you don’t use the UTMA to gift property to a minor in your will, the executor of your will or your trustee, if you leave a trust, may do so. He or she can use UTMA to transfer property from your estate to minor beneficiaries named in your will. In California, this can be done without a court’s approval if the property to be gifted is worth less than $10,000. For amounts worth more than $10,000, a court must approve the custodianship unless the custodian is a trust company or has been designated in a trust instrument that doesn’t require a bond.
Using Trusts to Leave Gifts to Minors
Another way to gift property to a minor or minors in your will is to form a trust. You can set up a separate trust for each child to whom you want to leave property, or you can establish a family pot trust to provide for multiple minors in the same family.
When you establish a trust, a trustee will be appointed to manage the funds and property therein. A trust is a good way to provide for the support of minor children you leave behind, because it authorizes the trustee to use assets from the trust to pay for the children’s living expenses, medical bills, education, and other needs. In a pot trust, the trustee may be able to spend different amounts on each beneficiary, according to their needs.
One advantage of establishing a trust is that you can use it to prevent minors from gaining full access to the property until they reach an older age than 25, such as 30, 35, 40, or even older. Many people do this because they want to make sure the minor is mature and financially savvy before he or she receives the money from the trust.
However, a pot trust ceases to exist when the youngest child reaches 18 years of age, meaning that older children will need to wait longer to receive their share of the property from the trust. This might not be a big deal if the children are close in age, but it could be unfair to older children if there’s a big age difference.
While UTMA gifts to minors are simple and easy to perform, a trust may be the preferable way to gift property to minors if there is a lot of property or money to pass on. A trust may confer certain tax advantages that an UTMA transfer will not.
Naming a Property Guardian
A property guardian is someone who manages property on the behalf of a minor child. If you were to pass away without a will, or without naming a means of managing your child’s property in your will, the court may appoint a property guardian to manage your child’s property on his or her behalf. He or she may or may not be the same person who serves as your children’s personal guardian.
When you use a property guardian, the property must go through probate, and the guardian is subject to review by the court, annual reporting requirements, and strict restrictions as to how they can manage or use the funds. A named property guardian will probably have to hire a lawyer to deal with all of this, and this could eat into the funds you intended for your children. Property guardianship must end at age 18.
The best way to leave assets to minors is through UTMA custodianship or a trust. You may want to name a property guardian in your will anyway; this person can manage any property that you may acquire that is not put into a trust or UTMA custodianship prior to your death.
If the minor children in question have substantial earnings of their own, if they get property after the will or trust is executed but before documents are amended, or if they receive a large gift that doesn’t come with a named property manager, a property manager that you name in your will can manage these assets on the children’s behalf.
Contact a Dedicated California Estate Planning Lawyer Today
Estate planning is a chore that no one wishes to face, but once it’s done, you’ll enjoy peace of mind knowing that your family, including your minor children, will be provided for after you’re gone. The Ledbetter Law Firm, APC is dedicated to helping individuals and families plan for their futures through all aspects of estate planning.
Contact The Ledbetter Law Firm, APC by filling out our online contact form, or call us at 310-507-7022 to discuss your estate planning needs and any questions you might have about trusts, wills, or the probate process.