In California, minors cannot own property above $5,000 outright until they are 18 years old. The rule makes sense, of course: Teenagers are rarely mature enough to manage large sums of money wisely. The question is, how does this law affect your estate plan? What will happen to the assets you leave to your child if he or she is still a minor when you die?

The answer is surprisingly simple, at least on one level: You must name an adult who will manage your property until your son or daughter is old and mature enough to do so him or herself. This person’s responsibility is to make sure that your inheritance is always used in your child’s best interest, i.e. to pay for living expenses and education as well as for any health needs that may already exist or arise at a later point. In most cases, this person will be the one you named as personal guardian for your minor. (You can read more about guardianship in one of my previous posts, An estate planning essential: Guardianship for a minor.) But if you are concerned that the appointed individual may lack the experience to manage your estate you can also go with a different person.

On another level, when it comes to choosing how your children’s property should be managed, things are a bit more complex because you have options: a custodianship under the Uniform Transfers to Minors Act (UTMA,) a trust (either for each child individually or one family pot trust for all) and a custodial account. The latter is a useful tool for dealing with assets that your minor may receive from other sources than you. But for the property that you yourself leave to a minor you will want to go with one of the first two choices.

The differences? Under the UTMA solution your child’s property manager, the custodian, administers your bequeathed assets until the child reaches a certain age. In California this will be at least 18 but no older than 25, depending on what you specify. With a minor’s trust, which you create either in your will or in your living trust, a trustee handles the property until your child is entitled to manage his or her inheritance. In this case, you set the age restrictions as you please. You can determine that your son or daughter’s money should be held in a trust until they reach a certain age, finish college or hit another milestone. You can even provide for the trust principal to be handed over incrementally. Whatever you decide to do, the important thing is that you decide. If you don’t plan ahead the courts will appoint a property guardian to administer your minor’s inherited assets until he or she is 18.

by Kevin J. Moore