Can Grandchildren Receive Inheritances?
Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are generally not allowed to manage property themselves. Rather, it must be managed for them under Louisiana law by what is called a “tutor”. With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.
If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as the tutor of the estate of the minor child, which takes time. The tutor is often the child’s parent, but getting the tutor appointed involves a legal process.
Periodic accountings must be submitted to the court. Tutorships require extensive reporting and any monies spent must be accounted for.
When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the tutor nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.
There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.
One option is to leave it to the child’s parent. This takes out the issue of court involvement but has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.
Louisiana has a Uniform Transfers to Minors Account which could be considered. Gifts placed in these accounts are held in custodianship until the child reaches 18 and the custodian has a duty to manage the property prudently. If the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.
For most people, the best answer to the question, “Can Grandchildren Receive Inheritances?” is a trust. A trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.
A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.
A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.
There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Can Grandchildren Receive Inheritances?” read these additional articles: Must I Sell Parent’s Home if They Move to a Nursing Facility? and Do You Have to Pay Taxes on Inherited IRAs? and When Can Estate Assets Be Distributed? and What’s the Limit for Earning with Social Security?
Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”