Why You Should Not Put Property in Your Child’ Name as Part of an Estate Plan


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An estate plan details what happens to a person and his or her property who becomes incapacitated or dies. Some people may wish to leave property to their children. This can cause potential problems, depending on whether the child is a minor, the type of property and other considerations. Some possible problems that can arise by listing a child’s name as part of your estate plan.

Minor Children

Minor children are not legally able to inherit outright. Therefore, even if a child is named as a beneficiary, additional arrangements must be made to allow for the safekeeping of the child’s inheritance. If an estate plan simply lists the child, the child’s parent may have to make additional arrangements to handle this inheritance. The court may appoint a custodian to handle the inheritance. For smaller inheritances, the executor may be able to appoint a custodian under the Uniform Transfers to Minors Act to manage his or her property. Once the child turns 18, he or she receives full control over the asset.

Children Who Do Not Spend Well

In some situations, a parent may provide for his or her adult child. The adult child may have a poor history of spending and may quickly spend through the inheritance left for him or her. The adult child may have creditors who can access to the inherited funds. The adult child may comingle the inheritance funds with marital property, leaving the funds potentially vulnerable to being reached in case of divorce.

Immediate Transfer of Property

Even if a child is an adult and otherwise manages money well, there may still be issues with including a child’s name on an estate plan. For example, if a parent adds a child’s name to his or deed or checking account, the child will have an immediate interest in the property and may have equal right to access or use the property for his or her own needs. This ownership interest may allow others like a divorcing spouse, creditors or the Internal Revenue Service to affect the property. Likewise, an adult child may be able to force a sale of a home sold jointly if he or she believes that the parent could not take care of himself or herself and be able to receive proceeds. Even without this concern, a joint owner may be able to get a court to force a sale.

If the parent has Medicaid, there can be certain implications to adding a joint owner, such as being found to have made a transfer for less than fair market value during a lookback period. This can cause a person to lose necessary medical insurance or to be denied insurance when he or she needs it.

Trusts

A primary way to deal with these potential obstacles is to draft a trust in which the testator lays out his or her wishes on how the funds going to his or her minor or adult children will be used. For example, the trust may provide for the child’s college education to be paid for. It may also allow the named trustee to safeguard the child’s trust funds and to use them to pay for the child’s medical or living expenses. It may provide for the child to reach an older age before receiving the funds directly. A spendthrift provision may also be added to the trust to help prevent creditors from being able to access the trust funds.

Naming a Conservator

A will may name a conservator who is responsible for handling the child’s inheritance. This individual is tasked with the responsibility of safeguarding the inherited property and managing it for the use of the child. The court can then appoint the person that the testator named in the will to care for the child’s property.

Custodian Under the Uniform Transfers to Minors Act

The Uniform Transfers to Minors Act is a law that allows a person to choose someone to manage property that he or she is leaving to a child up until the age the state designates, such as 21. This mechanism can be used in a will, trust, insurance policy or other accounts that use beneficiary designation forms.

Legal Assistance

Individuals who would like to learn about how to provide for their children in their estate plan without causing some of the problems discussed above may choose to contact a qualified estate planning lawyer for guidance and assistance. He or she can explain some of the possible estate plan arrangements that a person can make to provide for their children in a structured way that meets their needs.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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