WHEN MINORS INHERIT PROPERTY (Part II Continued: Solving the Problem)

A major issue that we often see involving minor’s property has to do with life insurance proceeds.  Simply put, it is almost always a mistake to name a minor child the beneficiary of a life insurance policy. Only where the proceeds are a very small amount such as a few hundred dollars might it be okay to name the minor child personally as the beneficiary of the policy.  The cautious approach for this small amount and certainly for anything more would be to have the proceeds payable to some type of trust for the minor’s benefit.  This can be a stand-alone trust that is not funded until the life insurance proceeds are paid or a trust that is operational with other monies or properties for the minor or others’ benefit that receives the funds once they are paid by the insurance company. 

Without the use of a trust, if a minor is the named beneficiary and the amount to which the minor is entitled exceeds a small amount (currently $10,000 in S.C.), a conservatorship will have to be established in the probate court to receive, handle and manage the insurance proceeds until the minor attains the age of eighteen (18).  As with a minor’s inheritance under your Will, you can plan for the minor’s receipt of life insurance proceeds by the use of some type of trust and completely eliminate a conservatorship proceeding in the probate court to manage the insurance proceeds for the minor child.

Most people have family members or close friends that they trust to handle their children or grandchildren’s property who could do a fine job without any oversight or reporting to the probate court, which is mandatory when a conservatorship is established through the court.  And if you can insure the protection of the minor’s property or inheritance without court involvement and allow the person you trust to handle the funds for the minor’s benefit, then most people would prefer less involvement and oversight by a court or government agency.  If something does goes wrong with a trust or similar property arrangement for a minor that has not been established and monitored by the probate court, then any interested person can invoke the jurisdiction and authority of the courts of this state quite easily so that they become involved at that time.

Another possible planning opportunity exists for funds that are to be received by a minor following a wrongful death case to which the minor is a beneficiary or a personal injury case involving injuries to the minor.  There are limited provisions in our probate code to establish a trust for a minor after the fact when no amount of pre-planning is possible.  This after-the-fact post-planning requires approval by the probate court and there are no guarantees that the court will approve the proposed plan for the minor’s benefit.  With proper structure, purpose and protection, however, it is possible to plan and establish a trust after an event to protect the property of the minor beyond his or her 18th birthday, which is the age that a minor conservatorship must be terminated and the funds paid to the now-adult person (minor).  Continuing a trust for a young adult is most often preferred rather than allowing a large amount of funds to be turned over to an 18 year old that may spend the funds recklessly.  So, post-planning under these circumstances is possible through a skilled estate planning attorney. 

A final mention about minor’s property has to do with the inheritance of an interest in real property by a minor.  This happens often when there is no Will or the Will does not contain a trust provision for minor beneficiaries.  We see it quite often when there are numerous other people who owned the real property with the decedent or who have also inherited the decedent’s interest in the property.  The inheritance of any interest in the real property by a minor will tie up everyone else’s interest in the property.  The property cannot be sold, transferred, or mortgaged without approval by the probate court, which approval requires the filing of legal documents, service of process on all interested persons, a hearing in the court, and notice to all necessary parties.  The establishment of a trust to hold the minor’s interest in such real property would, again, in most cases, eliminate the need for probate court approval for any sale, transfer or mortgage of the property.  There are clear, easy ways to allow a minor to own an interest in real property without tying it up to the extent that the minor or others cannot enjoy the property, but pre-planning must occur in order to avoid the restrictions that result when a minor inherits real property.

Overall, there are many situations that necessitate court involvement with minor’s property or monies that could be avoided if proper pre-planning is done.  A little bit of pre-planning could make an enormous difference in what a family ultimately has to do to take care of a minor’s property.  Let this be a good pep talk to each of you who have postponed taking care of your affairs and preparing, in advance, for those who you intend to leave your property.  Take the time now to make things easier for those who will have to manage property for a minor child or children and make things easier for all involved.  It’s time for those of you who have not done anything to get started.  And for those who started this process but never finished, it’s time to finish what you started.

(The information provided in this article is for informational purposes only and is of a general nature. The information should not be construed as legal advice. If you have any questions about the subject matter of this article or related matters, you should consult with a professional advisor for advice. Deirdre W. Edmonds previously served for twelve years as Horry County Probate Judge and is currently the owner of The Law Office of Deirdre W. Edmonds, PA, located at 1500 Highway 17 North, The Courtyard, Suite 213, Surfside Beach, SC  29575.  The Law Office of Deirdre W. Edmonds, PA focuses on estate planning, probate administration, probate and trust litigation, disability planning and elder law.  Contact Deirdre W. Edmonds via Telephone: (843) 232-0654; Website: www.dedmondslaw.com; and Email: dedmonds@dedmondslaw.com.)