Can a minor child inherit financial assets and/or property? The answer is YES, they can.

A minor child can inherit assets and property, but by law they are not able to manage it on their own until they reach the age of majority/adulthood at age 18. The age of majority is 18 in most states, except for Alabama and Nebraska with an age of majority of 19, and Mississippi at 21. If parents, relatives, or a friend of the family would like to share an inheritance with a child under the age of majority, they need to consider the best way to pass along the assets, who is best suited to help manage the assets, and the duration of time for which the assets should be managed. To best accomplish these goals, there are various planning structures to consider.

A trust for a minor’s benefit is typically the best way for a child to receive an inheritance. The trust is created through a revocable trust structure executed by the grantor – usually a parent, grandparent, or other family member related to the child. Within the document, the grantor will name an individual or a corporate fiduciary to manage the assets for the minor’s benefit after the grantor’s passing. The named trustee will be directed on how to specifically manage the assets and what the requirements or circumstances are for funds to be distributed or withheld from the beneficiary. The trust document will also define at what age the minor child should receive the balance of the trust. This could be when the child reaches the age of majority, or depending on the type of assets held in the trust, the grantor may require the assets to remain in trust for a longer period of time.

A grantor will typically set parameters in the trust as to how the assets are to be spent to support the minor child. It’s common to see language allowing distributions for medical and educational expenses and possibly housing needs as well. Alternatively, the grantor can choose to leave the decision making of distributions up to the trustee at his or her discretion. Whatever requirements or stipulations the grantor wants to put in place, it should be clearly defined in the document to best guide the trustee on how to utilize the trust for the child.

As a trust for a minor can be created through a grantor’s revocable trust, or also through a deceased person’s Last Will and Testament. This type of trust structure is called testamentary trust. Administration of a testamentary trust for a minor child is the same as that of trust created from a grantor’s revocable trust, except the assets must go through probate prior to the trust being created for the minor’s benefit. Probate is avoided when a minor’s trust is created from a grantor’s revocable trust.

If a parent or family member would like to create a single trust to handle the care and needs of multiple minor children, they can do so rather than creating a separate trust for each child. A trust created to support multiple beneficiaries is called a pot trust which is a “pot” of assets available to support the needs of multiple beneficiaries. This trust structure can work well when the children have similar needs, but should they have differing needs, it can be difficult to ensure equality amongst the beneficiaries. For example, if one child requires assistance for ongoing medical needs, they will likely use a larger share of the trust assets than a healthy child would.

Another option for leaving a minor child an inheritance is through a custodial account such as a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account. An UGMA account is limited to holding assets such as stocks, bonds, mutual funds, life insurance, and cash whereas an UTMA account allows for additional asset types including real estate and real property. As the age of majority differs by state, the same is true for the age of majority for UGMA and UTMA accounts. The typical age of majority ranges from ages 18-25 except for Wyoming that has an age of majority range from 21-30. These account types are managed by an adult custodian until the minor reaches the legal age of majority in their state and can assume full control of the account. While both UGMA and UTMA accounts are easy for a custodian to administer, they can lack the control and direction that a trust offers.

These are a few options for consideration when planning for a minor child’s inheritance. If you are considering gifting to a child through your estate plan, the goal is to comfortably know your property and assets will be managed and distributed appropriately for the minor child and that their financial well-being is handled by those you know and trust. Be intentional with your directions and keep the child’s best interest a priority.