Property Managers for Children's Inheritance

Children under 18, and sometimes even older kids, usually aren’t ready to handle an inheritance on their own. To protect a child’s inheritance, you can use your will or a living trust to appoint a trustworthy person to oversee their assets. This article covers the main ways to manage a child’s inheritance, including naming a trustee, choosing a property custodian, and appointing a property guardian in your will.

Trustees for Minor Children

A child’s trust is a legal arrangement you can create in either your will or living trust in any state. The beneficiary may be your own child or any young person you designate. Many people prefer to set up this kind of trust through a living trust because it avoids the probate process and court oversight that come with a trust created by a will, also known as a testamentary trust for children.

When you create a child’s trust, you designate a trustee to manage any property left to a minor beneficiary until they reach the age you specify. Because a child’s trust can continue until any age you set, it is a good option for managing property left to young adults as well as minors.

Your will or trust document spells out what the trustee can and can’t do. The trustee can use the trust’s money to pay for things like the beneficiary’s education, healthcare, and daily needs. They also need to keep the beneficiary updated, follow state laws when managing the assets, and file a separate tax return for the trust every year.

If the property is worth a great deal or the beneficiary lacks maturity, it’s probably best to create a child's trust and name a trustee, even though a trust means more work for the property manager than the Uniform Transfer to Minors Act (UTMA), discussed next. You can learn more about creating a child’s trust in.

Uniform Transfers to Minors Act (UTMA) Custodians

The Uniform Transfers to Minors Act (UTMA) allows you to name a custodian to manage property you leave to a minor through your will or living trust. Each state has adopted its own version of the UTMA. Management ends when the minor reaches age 18 to 30, depending on the state.

Under the UTMA, the custodian can collect, hold, manage, invest, and reinvest the property, and spend it for the minor’s benefit. They don’t need court approval for these actions. The custodian also has to keep records for tax purposes and carefully manage the property in the UTMA account.

In general, the UTMA works best when the property isn’t very valuable and the child is mature because it’s easier to use than a child’s trust or pot trust.

To learn more about UTMA custodianships, see Uniform Transfer to Minors Act (UTMA): How It Works.

Property Guardians in a Will

Young children aren’t able to manage large amounts of property on their own. You can name a property guardian in your will to look after any assets not handled by a trust or custodianship. The guardian would manage anything your minor children already own or receive later as a gift, inheritance, or income.

Property guardianships aren’t ideal for managing children’s property because they always require court supervision and aren’t flexible. They also end automatically when the child turns 18 in most states. Still, it’s important to name a property guardian in your will so you can choose who manages your children’s property, instead of leaving it up to a judge.

Property Management for Children With Disabilities

The options in this article aren’t enough for young people with significant disabilities or those who receive government benefits. It’s a good idea to talk to an experienced attorney about your choices. To learn more, see What Is a Special Needs Trust?

Choosing a Child’s Trustee, UTMA Custodian, or Property Guardian

No matter which type of property management you use, choosing a responsible property manager is essential. Pick someone you trust who understands property management and shares your values and views on how the money should be used. It also helps if they live in or near the state where the property is located.

You don’t have to pick a financial expert to manage the property. The manager can always hire professionals like accountants, tax preparers, or investment advisors if needed, and pay them from the assets. What matters most is that the manager is honest, makes good decisions to protect the property’s value, and distributes money to the beneficiary in a fair and thoughtful way.

Naming More Than One Person

If it works for your situation, it’s usually best to have the same person handle both personal care and property management for a young child. Think about who would likely care for your child if you die, and then decide if that person is also a good fit to manage the child’s property.

If you don’t think the caregiver is the right person to handle finances, look for another trustworthy adult to manage the property. If you need to pick two different people, try to choose individuals who get along well and can work together. For property left to young adults who don’t need a personal guardian, pick someone reliable and good with money to manage the assets.

Naming Your Child's Other Parent

It might surprise you to hear that your child’s other parent is not automatically entitled to manage property you leave to your children in your will. Unless you specifically name them as the manager in your will, they will typically need to petition the court for appointment and then manage the property under court supervision until the children reach 18.

If you want your child’s other parent to manage the property you’re leaving to your children, make sure to name them clearly in your will. Only do this if you expect that parent to be alive when your child inherits the property. If your will says your children only get assets if your spouse dies first, naming your spouse as property manager won’t work. This isn’t an issue for property that doesn’t go through your will, so it often makes sense to name your child’s other parent for that role.

Naming an Institution

When selecting a trustee or property guardian, you can name an institution to manage the assets, but this is usually not recommended. Institutional trustees are expensive, often require special language in the trust documents, and typically lack the personal insight needed to address a child’s individual needs. Additionally, most banks require trusts to contain significant assets and may refuse those that don’t use the institution’s terms, all while charging high management and administrative fees.

By contrast, family members or friends who serve as trustees often waive fees or accept much lower compensation than institutions. If you don’t have enough assets to meet a bank’s minimum or can’t find a suitable individual, it may be better to avoid creating a trust. Banks frequently pool smaller trusts together and still charge fees as if they were managing them individually, whereas a person serving as trustee can often achieve comparable results at a much lower cost by using well-managed mutual funds.

If you don’t want to name a friend or family member, you can choose a professional financial manager you trust. This works well if no one close to you can take on the job. Make sure to talk about the role, fees, and expectations with the professional ahead of time so you both understand the agreement.

If you still want to name an institution as property manager, it’s a good idea to talk to an experienced estate planning attorney to make sure the institution is right for you.

Naming Different Property Managers for Different Kids

If you think it’s best, you may name different property managers for different children. You should choose the person best suited to manage each child’s inheritance, based on their relationship with the child, financial skills, and understanding of that child’s needs and circumstances. Just keep in mind that you should choose people who can work well together, particularly if the children will share any property.

Make sure your choices are clearly stated in your will or trust document.

Naming an Alternate Property Manager

You’re not required to name an alternate trustee, custodian, or guardian, but it’s wise to do so. If your first pick is unavailable and you haven't chosen an alternate, a judge will appoint someone, as discussed above. This will take time and cost money, and you won’t have a say in who manages the children’s property. When choosing an alternate, use the same factors you considered for your first choice.

Get the Property Manager's Consent

Talk with anyone you’re thinking of naming as a property manager to make sure they’re willing and able to do the job. Explain what the job involves, ask if it’s okay to name them, and encourage them to let you know if they change their mind or their situation changes. It’s important that they’re ready for the role and not surprised by it, especially during a difficult time.

Learn More About Wills and Estate Planning

When planning for a child’s inheritance, it’s important to choose the right legal structure and a responsible manager for their assets. By considering your family’s needs and the options available, you can ensure your child’s financial future is secure and managed according to your wishes.

The following articles can help you learn more about wills and estate planning:

• Naming a Child’s Guardian
• Uniform Transfers to Minors Act (UTMA)
• What Is a Special Needs Trust?
• Naming a Pet Guardian in a Will or Trust
• What Happens If You Die Without a Will?

You can find out more about making WillMaker’s will and living trust in WillMaker’s Legal Manual.