What to consider when planning for your children’s inheritance.
Q: Recently, my sister informed me that should my husband and I die, we cannot pass our assets to our minor children because minors cannot hold assets or own property. If that’s true, how are children protected in the event of the loss of their parents?
A: When transferring assets at death, we often overlook the unexpected results of leaving assets to minor children. In Florida, a minor is someone under age 18. When assets are left to a minor without proper planning, an undesirable result may be inevitable. Consider the case of Joan and Fred.
Joan and Fred owned everything jointly. Their wills left everything to each other and, upon their deaths, their assets were to be distributed to their two children, Annie and Toby, ages 5 and 8. Joan’s sister, Jill, was named as personal representative of their estates. When Fred and Joan died in a car accident, all of their assets, which totaled $550,000, were left to Annie and Toby. What happened?
By law, the probate court must supervise the payment of debts and distribution of assets according to a decedent’s will. Before Jill could transfer assets to Annie and Toby, Jill needed to hire an attorney and open probate to be appointed personal representative. To complicate it further, in Florida, beneficiaries under 18 cannot not take title to or possession of their parents’ assets in their own name. A legal guardian must to be appointed by the court.
Therefore, Jill was required to hire an attorney and apply to the court to also be appointed legal guardian over the assets of Annie and Toby. She was responsible for managing the assets for them until they turned 18. She had to apply to the court each time she needed to expend funds on their behalf and was required to file an annual accounting with the court showing how the assets were used. Once 18, Annie and Toby demanded their share of the assets and quickly depleted their inheritance. This was not Joan and Fred’s intention.
Could this have been avoided? Absolutely. Had Joan and Fred established a living trust, they could have specified at what age they wanted Annie and Toby to receive their inheritance. Jill could have been named successor trustee and automatically taken control of the trust assets upon Fred and Joan’s deaths. There would have been no probate proceeding and no attorney costs. Additionally, there would have been no need to appoint Jill the guardian over the children’s assets because, as trustee, she would have had immediate authority to manage and invest the trust assets and use the assets for Annie and Toby’s health, support or educational needs. Finally, the temptation to Annie and Toby of spending their inheritance frivolously would have been eliminated. By being held in trust until they reached an age specified by John and Fred, their assets would have been preserved and protected for their children.