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

            In this column two months ago, I discussed some of the common situations that result in the inheritance or receipt of property by minor children.  These situations included entitlement based upon our state’s wrongful death, worker’s compensation and personal injury laws.  They also included entitlement by a child based upon our state’s inheritance laws, under a person’s last will and testament, or sometimes by some type of beneficiary designation on property such as life insurance or annuities. 

            In most cases, as adults we can plan for what we want to do with our property and our money, for that which we want our minor children (or grandchildren) to have or receive.  Because it is our own money and property, we can and should engage in certain types of pre-planning to protect the property and those we want or anticipate might receive it, especially when it is or might be received by a minor child or grandchild.  In some of these situations, however, no preplanning can be done, such as with wrongful death and personal injury monies. But there are, in these cases, opportunities for after-the-fact planning that can be considered and implemented.

            The majority of situations in which a minor receives an interest in property (whether real or personal) are because of the death of a parent.  We all know it is going to happen at some point and we all hope for tomorrow.  But we should all say “what if” and plan accordingly.  The most fundamental pre-planning we can do is to have a good, solid Last Will and Testament.  It can never be said too often.  You should (dare I say “must”) have a Will, especially if you have children and especially if you have minor children.  You are setting your family up for complications and difficulties that could easily be avoided entirely with a good Will that takes into account minor beneficiaries.

            Any good Will prepared by a good estate planning attorney will take into account the possibility of minor beneficiaries, whether children or grandchildren and then on down the line, and plan accordingly for them in the Will.  So, your Will should contain some type of trust provisions so that if any child is a minor or a young adult, someone else that you can designate in your Will can hold the minor’s property in trust until the minor is old enough to manage the property.  Without such a provision in your Will, if the minor inherits any property under your Will in excess of $10,000, then before your estate can be closed and the property distributed, a separate proceeding in the probate court for the appointment of a conservator for the minor will be required.  By the inclusion of a standard trust paragraph in your Will for minor beneficiaries, a conservatorship proceeding for any minor beneficiaries can be completely eliminated.

            Even if all of your children are adults, this type of minor trust paragraph should still be included in your Will, since under the Will or by law a deceased child’s share may go to such deceased child’s children who might be a minor child or young adult. 

            Another benefit of this standard minor’s provision is that the provision can be tailored to allow the property to be held not just until the child is eighteen (18) but beyond 18 to maybe age 20 or 25.  And, it can be drafted so as to cover any persons who receive property under the Will who are under a particular age, such as 20 or 25.  One of the great disadvantages of a conservatorship is that, by state law, the minor is entitled to receive all of his or her property upon his or her eighteenth (18) birthday regardless of the minor’s maturity to manage the money.  Under your Will you can restrict access to the money for however long you see fit beyond age 18 and you can give the person you appoint in your Will to manage the property the discretion to consider unforeseeable events or happenings in making distributions to the child or young adult.

            Even though a few standard paragraphs can eliminate the need to establish a conservatorship through the probate court for a minor beneficiary, I strongly recommend, however, that if you have minor children that you know will inherit because you name them as beneficiaries in your Will or they are likely to inherit at your death or if your spouse is deceased, then this simple standard minor trust provision is probably not sufficient for these more certain purposes.  In these types of situations you should probably have a detailed testamentary trust included in your Will that addresses not just the minor’s share but is much broader and includes additional contingency provisions.  The more likely the need for the trust, the more planning and detailed drafting that is required. 

            Another 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 the 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 again 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.

            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 probate 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.  And 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 of a trust for the minor’s benefit and proper purpose and protection, however, it is possible to plan 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 to be spent freely on a whim.  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 all 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 a world of 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 put off taking care of your affairs and taking care, in advance, of 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.)