What's in an age? Considerations in choosing the age of inheritance

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One of the many purposes of an Estate Plan is to determine at what age your beneficiaries can inherit their shares of the estate. For clients with young children in particular, what to set as the age of inheritance is a common questions. There is no “right” answer that fits every family and making this decision is one that requires discussion with your partner (if you have one) and your attorney.

When someone’s estate goes through the probate court process, a judge determines who the rightful heirs are and also the distribution of assets. Another major goal of Estate Planning is to eliminate the need for the probate process. Additionally, through probate, a custodian for assets a minor child inherits would need to be appointed by the judge and when the child turns 18 years old, he or she would have complete control of the inheritance.

One person we met for Estate Planning reasons had inherited a large amount when she turned 18 years old and spent the bulk of the money on travel to exotic destinations. Though she enjoyed her experiences, she realizes now that this level of spending was not prudent. This was a primary reason why she wanted to set up an Estate Plan and create the controls for when her daughter would inherit the assets if something happened to her and her husband.

Many people may feel that 18 years old is just too young for someone to handle large sums of money. A typical 18 year old may have just graduated high school and still may be living with family. Still, the parents want to make sure that their child is adequately supported. In almost all circumstances, we draft the Estate Plan so that the successor trustee can use funds to support the health, education, support, or maintenance expenses. This means that your child’s needs are always taken care of by the successor trustee, who is also managing and investing the trust assets. (Here’s a post on Choosing a Successor Trustee)

So what age is the “right” age for someone to inherit then? The answer is that it depends. If you have minor beneficiaries, I recommend to think about your personality and maturity level to determine what would have worked for you and start from there. As they are growing older, you do have the opportunity to amend your trust and change the age of inheritance if life circumstances change. If your beneficiary is already an adult and mature enough to handle finances should something happen to you, you may even feel comfortable that they would immediately inherit their share.

Some clients ask whether to condition the age of inheritance on rites of passage like when the beneficiary graduates from college or gets married. Though these milestones may represent signs of maturity, they also may not be goals in your child’s journey. We may have wishes for our children, but it is important to understand the practical impacts on the trustee if too many restrictions are imposed.

If, however, there are very real concerns for a beneficiary, then it may make sense to create more conditions. For instance, if a beneficiary has a lot of trouble with creditors, we routinely include a spendthrift clause. If a beneficiary has a history of alcohol or drug abuse, we can create language to address these issues. If a beneficiary has special needs, receives government benefits, and will not ever be able to manage money, then a Special Needs Trust may be necessary to ensure that the beneficiary has access to their inheritance through a trustee who manages the funds (without necessarily eliminating eligibility for government benefits).

We work with our clients to figure out the family dynamics, goals, and wishes so that their Estate Plan fits their needs. Through our design session, among other choices for asset distribution, we also discuss the age of inheritance. This sometimes can be even in the form of “ages and stages,” where a beneficiary may receive a certain percentage at different ages while the remainder is held in trust (still for their benefit, but controlled by a trustee). Even though it’s not always a likely scenario to happen, we also make it a point to discuss asset distribution in the case something has happened to the original beneficiaries, as well as the ages of inheritance and terms in those situations.

At a prior firm that our attorney worked at, clients were not asked about their wishes for how assets were distributed and when the age of inheritance was. Rather, unless a particular client brought up these issues, the firm just had boilerplate standards for these wishes, which were not discussed with the clients until documents were signed. In fact, at the signing appointments at this firm, sometimes clients would object to the standards and the plans would have to be rewritten on the spot because the wishes had not been discussed prior. That was stressful for both the clients and the attorney. This experience motivated our attorney to truly understand the importance of customizing plans and exploring clients’ wishes with them in a dialogue.

As mentioned, there is no “right” age of inheritance that works for everyone and this is an important choice to discuss with your attorney. Some things that I like clients to consider in choosing when the beneficiary inherits the funds are:

-the beneficiary must be at least 18 years old (the age of majority in the United States)

-level of maturity

-ability to manage finances

- your long-term goals for your assets

-if there are any specific concerns for your child

-the trustee manages the funds for your beneficiary’s health, education, maintenance, and support expenses until the beneficiary inherits the assets

-when the beneficiary inherits a sum, he or she has complete control over how to spend the money (basically, there are “no strings attached).

-when assets are held in trust, the trust may have its own income taxes to file annually

-specific personal gifts like jewelry can be given immediately upon your passing if you wish to do so, even if the financial assets are still held in trust

I hope that this blog post gets you thinking about this important topic. Though the age your beneficiaries inherit from your estate can be changed over time if circumstances evolve, I highly recommend taking this decision seriously. Consider your family situation, talk with your partner, and discuss with your attorney. Make sure you are asking your attorney questions about how and when to distribute your assets and that your attorney also is taking the time to understand your situation. An Estate Plan can only really be good if it fits you and that requires collaboration with an experienced and caring professional and your ability to be open and honest about your wishes.