Property Management for Minors in Estate Planning

When making an estate plan, it's a good idea to set up property management for your minor children as well as any young people who could inherit from you. You might also want to think about loved ones with special needs who need help managing their assets. This article explains who may need property management and the different types of plans you can set up.

What Is Property Management in Inheritance Planning?

Children under 18 cannot legally manage more than a small amount of property. By setting up property management, you choose responsible adults to handle the property for the beneficiaries until they are old enough to manage it themselves.

If you don't arrange for property management and the inherited assets are worth more than a certain amount, state law will require the court to appoint a guardian of the estate or a conservator to manage those assets. The threshold for this requirement varies by state, typically ranging from $5,000 to $25,000.

Relying on a court-appointed guardian has several drawbacks. These arrangements typically end when the minor reaches the age of 18, and the process can be complex, expensive, and impersonal. Routine decisions may need court approval, with associated costs coming out of the property, and the court could appoint someone unfamiliar with the child's needs or circumstances.

Who Needs Property Management

You can arrange property management for young beneficiaries or people with special needs. When deciding if someone needs a property manager, consider their age, maturity, your relationship with them, and the value and type of property you're leaving to them. You should also consider setting up property management for any young alternate beneficiaries you name in your will or trust. The following categories can help you determine who may need a property manager.

Your Children. If you plan to leave property to your young children, it's a good idea to set up property management for them. You can do this by creating a child's trust or using the Uniform Transfers to Minors Act (UTMA), described below.

Also, if you have a child who is under age 18, it's important to name a property guardian for them in your will. A property guardian manages any assets the child receives outside your will or living trust, such as a separate inheritance or money they have earned.

Other Minor Children. Because minors cannot manage a large inheritance, you should name someone to handle any assets you leave to young people who are not your children. You can do this using the UTMA or a child's trust.

Young Adults. You can set up property management for young adults who may not be ready to manage their own finances. The method you choose will determine when the management ends. With an UTMA custodianship, management usually ends between ages 18 and 30, depending on state law. Some states let you pick the age, while others decide for you. With a child's trust, you have more flexibility to choose when it ends.

Whether to set up property management for a young adult depends on the type of assets and your view of the young person's ability to manage them on their own.

People with Special Needs. If you want to leave property to a loved one with a disability, you might consider setting up a special needs trust. These trusts can provide financial support without affecting eligibility for government benefits, such as Supplemental Security Income (SSI) and Medicaid. You name a trustee to manage the funds, and the inheritance does not count as the person's income. You can create a special needs trust in your will or as a separate document. Stand-alone trusts usually offer more flexibility and faster access to funds. These trusts need careful planning, so you may want to do more research or talk to an estate planning lawyer.

Alternate Beneficiaries. Even if you name young people only as alternate beneficiaries, it's still smart to arrange property management for them. This way, your wishes are followed if they do inherit. If they do not receive the property, the management rules won't apply.

How to Provide Property Management

You can use one or more of these common estate planning tools to set up management for a young person's inheritance: your will, your living trust, or paperwork supplied by a bank or other financial account provider.

Your Will. Your will can establish property management in several ways. One method is to name a custodian under the Uniform Transfers to Minors Act (UTMA), which allows an adult to manage property for a minor until the minor reaches the age specified by state law. Another option is to create a trust within your will, called a testamentary trust, in which you specify the terms and appoint a trustee to oversee the assets. Finally, if you have minor children, you will probably want to use your will to name a property guardian who will manage any property your child receives without property management (like inheritance from others or income).

Your Living Trust. If you make a living trust, you can set up property management for trust property you leave to young people. In your living trust you can either name an UTMA custodian or set up a child's subtrust. If you create a subtrust, you can provide detailed instructions on how and when those assets should be distributed to a minor or young adult and appoint a trustee to manage the property on their behalf. The trustee will manage investments, expenses, and distributions according to the terms of the trust, making sure the assets are used for the young person's benefit until they reach an age or condition you specify.

Assets in a living trust do not go through probate, so your beneficiaries can access funds faster and with more privacy than property you leave through your will. You can also update the trust during your lifetime if your situation changes.

Beneficiary Designations. If you want to name a minor as the beneficiary of a financial account, don't name them directly. Instead, you can name:

• an adult as custodian under the Uniform Transfers to Minors Act (UTMA), or
• the trustee of a child's trust you've established.

You'll need to use precise wording to ensure that, upon your death, the account assets are transferred to the designated custodian or trustee, who will then manage the funds for the minor until they reach a specified age. Confirm with your financial institution that they accept UTMA or trustee designations on beneficiary forms, and request their preferred language. For added assurance, consider consulting an estate planning attorney to ensure your beneficiary designation is legally valid.

Types of Property Management

There are three main tools you can use to manage property for children: the Uniform Transfers to Minors Act (UTMA), children's trusts, and property guardians.

Uniform Transfers to Minors Act (UTMA). The Uniform Transfers to Minors Act (UTMA) lets you appoint a custodian to manage property you leave to a minor through your will or living trust. Each state has its own version of the UTMA, and the age at which management ends varies by state, typically ranging from 18 to 25 years old. Under the UTMA, the custodian has the authority to manage the property and spend it for the minor's benefit without needing court approval. The custodian is also responsible for keeping records for tax purposes and managing the property prudently. Generally, the UTMA is a good choice when the property involved isn't of very high value and the child is mature, as it is simpler to use than a child's trust or pot trust.

Trusts for Young People. A child's trust is a legal arrangement you can establish through your will or living trust, allowing you to name any minor or young person as the beneficiary. When you set up a child's trust, you appoint a trustee to manage the property for the beneficiary until they reach the age you choose.

The terms of the trust, outlined in your will or trust document, specify how the trustee can use the funds, such as for the beneficiary's education, healthcare, and living expenses. The trustee is also responsible for keeping the beneficiary informed, complying with state laws, and filing an annual tax return for the trust. If the assets involved are substantial or the beneficiary is not yet mature enough to handle them, a child's trust offers more control and protection than a UTMA custodianship, even though it requires more effort from the trustee.

To learn more, see Setting Up a Trust for a Minor.

Property Guardianship. In your will, you can appoint a property guardian for any of your child's property that isn't managed through a trust or custodianship. This guardian would be responsible for managing assets your minor children already own or might receive in the future as a gift, inheritance, or from earned income.

As noted above, property guardianships have some downsides: they always involve court oversight, lack flexibility, and typically end when the child reaches the age of 18. Despite these limitations, it's still wise to name a property guardian in your will so you can decide who will manage any property your children receive outside your will or other estate planning documents, rather than leaving that decision to a probate court.

Types of Property Managers

There are four main types of property managers for children: custodians, trustees, property guardians, and professional fiduciaries.

Custodians. A custodian is a child's property manager appointed under the UTMA, discussed above. An UTMA custodian is empowered to collect, manage, and spend the property in an UTMA account for the young person's benefit, covering expenses like education, health care, and daily living costs. While the custodian can make decisions without court approval, they are required to keep accurate records and handle the child's property responsibly.

Trustees. When you set up a trust for a minor, the trustee you choose manages the property for the beneficiary until they reach the age you specify in the trust document. Your will or living trust explains the trustee's duties. Like a custodian, a trustee usually uses the trust funds to pay for the beneficiary's education, healthcare, and daily living needs. The trustee must also keep the beneficiary informed, follow state law, and file a tax return for the trust each year.

Property Guardians. The property guardian's responsibility is to manage a minor's assets if the child inherits property or receives funds without a trust or custodianship in place. This arrangement remains in effect until the child turns 18, at which point the property is transferred directly to them. Property guardians are appointed through a parent's will or appointed by the court.

Who to Choose as Property Manager

When choosing someone to manage a young person's property, pick someone you trust, who is capable of managing finances, and who has good judgment. Ideally, the person you name will know the child and their needs, but sometimes a professional is a reasonable choice.

It's also a good idea to name the same person who will care for the child themselves. That way, the person who is holding the purse strings is the same person who is likely to know the child's needs. But the best person to care for the child isn't always the best person to manage finances. In that case, it's reasonable to name different people for these two jobs--but do make sure they will be able to get along and make decisions together.

If you're naming a property manager for your own child's property, and your child has another parent, it usually makes sense to name the other parent as the property manager. However, (unlike personal guardians), it isn't legally required for the other parent to manage the child's property, so if the other parent is not the best choice for a property manager, you can choose someone else.

If you have more than one child, you can name the same person for the property of all of your children. Or you can name different property guardians for each child.

More About Property Management

The following articles go deeper into property management issues.

• Digital Assets and Estate Planning
• How to Set Up a Special Needs Trust
• Property Managers for Children's Inheritance
• Naming a Pet Guardian in Your Will or Trust

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