Can Grandchildren Receive Inheritances?
Yes, grandchildren can receive inheritances, but there are important legal considerations when the beneficiaries are minors. Minor children cannot legally own property, so naming them directly as beneficiaries creates complications and delays in estate settlement.
Problems with Direct Beneficiary Designation
When a minor is named as a beneficiary, the estate must appoint a guardian of the child’s estate. This process is time-consuming and may result in a guardian who isn’t the child’s parent. The designated guardian faces significant restrictions: funds typically must be deposited in federally insured accounts, regular court reports are required, and annual audits are mandatory. All expenditures must be documented and justified.
Additionally, when the child reaches legal age (usually 18), the entire amount transfers to them with no oversight. Few children are mature enough at age 18, even though they think they are, to manage large sums of money, and neither guardians nor courts retain any control over the funds afterward.
Alternative Strategies
Leaving Assets to the Parent
While this avoids court involvement, it offers minimal protection. The parent has complete control with no obligation to preserve funds for the child’s benefit, and the money lacks protection if the parent faces divorce or creditors.
Uniform Transfers to Minors Accounts
Available in most states, including Texas under Chapter 141 of the Texas Property Code, these accounts are held in custodianship until the child reaches 18 or 21. The custodian has a legal duty to manage assets prudently, though some states impose account limits, and a new custodian may be required if the original dies.
Trusts
Generally considered the best option, trusts can be established during the grandparent’s lifetime or through a testamentary trust following probate. They provide detailed directions on fund usage, specify a trustee to manage assets, allow staggered distributions at different ages, and offer superior creditor protection. Trusts can also accommodate potential disability, protecting government benefits from disruption caused by lump-sum payments.
Consulting an experienced estate planning attorney ensures your chosen method aligns with your family’s circumstances and overall estate plan.
If you or a loved one needs assistance with estate planning for grandchildren, do not hesitate to contact The Stegall Law Firm. We are here to help.
