What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving money or real estate to a child under the age of 18 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 Georgia, the threshold is $15,000. Check with a local estate planning attorney to determine your state’s limitations.

If the asset is valued at more than $15,000, or whatever the threshold is for the state, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator 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 conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship 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.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

Smart Women Protect Themselves with Estate Planning

The reason to have an estate plan is two-fold: to protect yourself, while you are living and to protect those you love, after you have passed. If you have an estate plan, says the Boca Newspaper in the article titled “Smart Tips for Women: Estate Planning,” your wishes for the distribution of your assets are more likely to be carried out, tax liabilities can be minimized and your loved ones will not be faced with an extended and expensive process of settling your estate.

Here are some action items to consider, when putting your estate plan in place:

If you have an estate plan but aren’t really sure what’s in it, it’s time to get those questions answered. Make sure that you understand everything. Don’t be intimidated by the legal language: ask questions and keep asking until you fully understand the documents.

If you have not reviewed your estate plan in three or four years, it’s time for a review. There have been new tax laws that may have changed the outcomes from your estate plan. Anytime there is a big change in the law or in your life, it’s time for a review. Triggering events include births, deaths, marriages, and divorces, purchases of a home or a business or a major change in financial status, good or bad.

If you don’t have an estate plan, stop postponing and make an appointment with an estate planning attorney, as soon as possible.

Your estate plan should include advance directives, including a Durable Power of Attorney, Health Care Surrogate, and a Living Will. You may not be capable of executing these documents during a health emergency and having them in place will make it possible for those you name to make decisions on your behalf.

Anyone who is over the age of 18, needs to have these same documents in place. Parents do not have a legal right to make any decisions or obtain medical information about their children, once they celebrate their 18th birthday.

Make a list of your trusted professionals: your estate planning attorney, CPA, financial advisor, your insurance agent and anyone else your executor will need to contact.

Tell your family where this list is located. Don’t ask them to go on a scavenger hunt, while they are grieving your loss.

List all your assets. You should include where they are located, account numbers, contact phone numbers, etc. Tell your family that this list exists and where to find it.

If you have assets with primary beneficiaries, make sure that they also have contingent beneficiaries.

If you have assets from a first marriage and remarry, be smart and have a prenuptial agreement drafted that aligns with a new estate plan.

If you have children and assets from a first marriage and want to make sure that they continue to be your heirs, work with an estate planning attorney to determine the best way to make this happen. You may need a will, or you may simply need to have your children become the primary beneficiaries on certain accounts. A trust may be needed. Your estate planning attorney will know the best strategy for your situation.

If you own a business, make sure you have a plan for what will happen to that business, if you become incapacitated or die unexpectedly. Who will run the business, who will own it and should it be sold? Consider what you’d like to happen for long-standing employees and clients.

Smart women make plans for themselves and their loved ones. An estate planning attorney will be able to help you navigate through an estate plan. Remember that an estate plan needs upkeep on a regular basis.

Reference: Boca Newspaper (March 4, 2019) “Smart Tips for Women: Estate Planning”

Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

  • Consolidating assets during lifetime and for ease of management upon disability or death.
  • Avoiding probate so assets can be transferred with privacy.
  • Protecting a beneficiary with cognitive or physical disabilities.
  • Setting forth the rules of use for a jointly shared asset, like a family vacation home.
  • Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
  • Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendent of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile doing. Talk with your estate planning attorney to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.

Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”