Estate Planning with Young Beneficiaries: Special Considerations and Common Mistakes to Avoid 

Few estate planning scenarios require more careful consideration than those involving minor beneficiaries. The distribution of assets to children under the age of majority (18 in most states) is complex and nuanced, and can often lead to unexpected complications, court involvement, and outcomes that may not align with your wishes.  

Many parents and guardians assume their spouse will automatically inherit everything if they pass away, or that their minor children will be adequately provided for through simple beneficiary designations – but this often isn’t the case.  

What Happens When Minor Beneficiaries Inherit Assets?   

Many clients are surprised to learn that without a Will, their children will inherit significant portions of their estate (under state law).  Estates Powers and Trusts Law (“EPTL”) §4- 1.1 provides that if a decedent is survived by a spouse and children, the spouse receives $50,000 plus one-half of the residue, with the children receiving the balance.  

A minor beneficiary is someone under the age of 18 who inherits assets but lacks the legal capacity to manage these assets independently.  

Under New York law (and in most states), minors cannot directly own property above certain thresholds. The Surrogate’s Court Procedure Act (“SCPA”) defines a minor or “infant” as any person under age 18. Without proper planning, rather than have assets pass directly to a child, funds are paid to a court-appointed guardian of the property (referred to as a “Guardian ad Litem” or “GAL”), as appointed by the Surrogate’s Court where the minor resides. 

This guardianship process can be costly, time-consuming, and restrictive. The GAL is responsible for safeguarding the funds while at the same time having heightened responsibilities relating to post a bond, file annual accountings, and seek court approval for many distributions. The court may authorize withdrawals only if needed to provide for necessities or education that cannot otherwise be met by a person responsible for the infant’s support. 

Most concerning to many parents: when the child reaches 18, all remaining funds must be distributed outright to that child, regardless of his or her ability to manage the assets responsibly.  

Trusts: The Flexible Protection Every Parent Should Consider  

One of the most effective ways to provide for minor beneficiaries is by establishing a trust, which offers several advantages:   

1. Asset Protection Possibility: Some trusts safeguard assets from creditors and potential claims, ensuring the funds remain intact for the intended minor.  

1. Controlled Distribution: You can specify when and how assets are distributed, preventing premature access to funds. This ensures the minor receives support at appropriate ages or milestones—not simply a lump sum at 18.  

1. Avoiding Probate: Trusts, to the extent that they contain assets, bypass the probate process, allowing faster access to assets for beneficiaries while maintaining privacy.  

1. Professional Management: You can appoint professional trustees to manage investments and assets, providing expertise that family members or close friends might lack.  

1. Tax Planning: various types of trusts can provide strategies to reduce the amount of estate tax your beneficiaries would otherwise receive at your death.  

Consider the following commonly used trusts:  

Testamentary Trusts are established in your will and become effective upon your death after the will is admitted to probate.  

You can:  

• Fund the trust with a specific amount or entire estate 

• Nominate one or more trustees to administer the trust  

• Set conditions on distributions (education, medical expenses, etc.)  

• Extend the trust beyond age 18 to a specific age or for the child’s entire lifetime  

Revocable Living Trusts with sub-trusts for minors offer similar benefits with added advantages:  

• No probate proceeding is required to fund the trust  

• Changes in trustees governed by the terms of trust without court involvement  

• Greater privacy and flexibility in administration  

Special Needs Trusts are trusts that can be established through a will, a trust, or as a stand-alone trust document, essential for persons with disabilities, helping to preserve government benefits while allowing for financial support to supplement the beneficiary’s needs.  

Take Action Now to Leave Your Legacy Your Way   

The sooner you begin thinking about estate planning, particularly if you have minor beneficiaries, the more confident you’ll feel about your children and grandchildren receiving their inheritance without tedious or expensive complications.  

At Opal Wealth Advisors, we can help you navigate your options and develop a plan that provides security and peace of mind for your family’s future. Click here to set up a complimentary consultation with our team.