Minors and Inheritance

When minors receive an inheritance outside of a trust, the inheritance is usually managed through an expensive court supervised guardianship proceeding. Upon the minor turning 18, the proceeding terminates, the child receives the remainder of the inheritance outright and free of trust and Pearl Jam is hired to celebrate the child’s birthday with 100 of his/her closest friends.

How do we avoid a court supervised guardianship? How do we prevent our children from receiving windfalls at 18? How do we involve a third party to make sure a child’s spouse does not exert undue pressure over the separate property inheritance? One answer is: Sprinkling Trusts.

A common sprinkling trust holds the majority of the child’s inheritance in the trust until the child attains a certain age which is often between 25 and 35. Prior to the child reaching the termination age, the successor trustee will sprinkle money out to the child for his or her health, education, maintenance and support. This standard can be broadened and can provide for a more liberal use of the trust funds if desired.

In some families, there are many children of different ages and/or different needs. In such a circumstance, we often create Family Pot Trusts that keep the trust estate in one big fund until a minimum age so that the youngest and/or neediest of the children have what they need to make it to that minimum age. Once ALL children have reached the minimum age, the remainder of the trust assets are distributed to sub-trusts or outright to the beneficiaries depending on the parents’ wishes.

Most of my clients believe that a windfall at 18 can stifle motivation and lead to unintended consequences. I don’t disagree and that is why I am a big fan of sprinkling trusts.