Leaving an inheritance to a minor child is not a minor matter.
Some children grow up and become adults.
Other children just keep having more birthdays.
If you understand the distinction, then you may even have children in each camp among your heirs.
Regardless, even if a minor child is the responsible “old soul” among your heir, they cannot claim an inheritance until reaching legal adulthood.
In Kansas and Missouri, that is age 18.
That is the majority position, but a handful of states delay that until age 19 or 21.
And property and estate laws are all state-specific, too, with each state having its own laws.
A recent a yahoo! finance took up this issue in an article that asks, “Can I Name a Minor as a Beneficiary?”
[Spoiler alert: you should contact an experienced estate planning attorney admitted to practice law in your state because this issue is state-specific, and relying on generic information is not wise.]
According to the article, there are four primary documents used to distribute assets to a beneficiary: last wills, life insurance beneficiary designations, retirement account beneficiary designations, and trusts.
If you want a minor child to inherit, then you cannot designate them as the direct beneficiary.
So, what happens when that happens?
Typically, a probate court action must be processed to appoint a court-appointed custodian (i.e., a responsible adult or institution) to act as a custodian over the inheritance, conservatively investing and distributing the funds under the supervision of the probate court.
Each year that responsible adult or institution must report all account activity to the court until the minor child attains the state age of adulthood.
On that magical day, the full account is turned over to that once minor child, now newly-minted adult.
That can be a very exciting thing to behold.
Let’s just say that turns out to be a very good day for the local sports car dealership and stereo store.
I know, that “stereo store” reference kind of dates me as a Baby Boomer, yes?
A far better plan for all concerned is to create an inheritance trust over any inherited assets, whether sourced through a last will, insurance policy, retirement account, or revocable living trust.
A properly drafted inheritance trust can protect the inheritance from and for the minor beneficiary as needed.
Plus, if that minor child does not become an adult, then the inheritance trust can protect it even as they continue to have more birthdays.
The inheritance trust can protect the inheritance of the minor child from squandering, as well as future divorces, lawsuits, and bankruptcies.
In short, planning for minor children is prudent planning for adult children, depending on your unique family situation and objectives.
Reference: yahoo! finance (June 19, 2023) “Can I Name a Minor as a Beneficiary?”