Our series of posts presenting real-life situations about the consequences of dying without a will. Preparing your will is not expensive and is a great way to protect your family. Please take the time to have your will prepared.
Situation 2: Naming Minors As Beneficiaries To Your Estate
Its not uncommon for parents to leave assets to their children or for grandparents to grandkids. Special care is needed when those beneficiaries might be under 18 years old. Here is why – and this is a big one – under Pennsylvania law, minors are not permitted to own property.
Consider Helen’s story. She had ten grandchildren and named them as beneficiaries of her individual retirement account (“IRA”). Many of her grandchildren were under age 18 when she died. The first problem facing Helen’s family was that a court proceeding was necessary to have a guardian of the estate of the minor grandchildren appointed to hold the IRA money left to them. This resulted in considerable expense and delayed distribution of the accounts until the proceedings were completed.
Further complicating matters was that Helen’s sister, (who did not have the best relationship with the grandchildren’s’ parents) petitioned the Court to be appointed Guardian of the Estate for the minor children. In Pennsylvania, the court seldom appoints the surviving parent as the Guardian of the Estate of the children. (Note: Guardian of the Estate differs from Guardian of your children, i.e. the person designated to care and raise them). That caused a considerable stir in the family.
The final straw was that the grandchildren’s money had to be placed into a sequestered bank account earning less than 1% interest. In the succeeding years, the guardian needed some of that money to pay for the grandchildren’s expenses and was forced to request the money from the Court every year to get the money out of the account. Court costs and legal fees further drained the accounts. Everything that was left was distributed to each grandchild when they turned 18. There are not too many parents for whom I’ve prepared wills who want their children to receive all their inheritance at 18. They usually delay distribution until at least age 21 or even later.
These problems can all be easily avoided by including a testamentary trust in your will. You can specify a person, someone that you know and trust, to serve as the trustee for all bequests to minors, whether those bequests are in your will or in a beneficiary designation on an account (such as Helen’s IRA, a life insurance policy or other account). You can identify how the money in the trust can be used and spent for the beneficiary while in the trust and give your trustee the power to spend the money without first having to seek court permission. Finally, you can delay distribution of the money until the beneficiary reaches an age of your choosing. The difficulties experienced by Helen’s family can be easily avoided by preparing your will. DON'T WAIT. Get the process started today.