It's common for parents to name children as beneficiaries when it comes to wills, trusts and insurance policies. If the parent dies, the minor inherits property, or receives a life insurance payout. States set the laws when it comes to a minor inheriting. In most cases, an adult guardian must manage the assets until the minor reaches legal adulthood. Using a lawyer to set up a trust account is one way, among several, to handle the situation.
Minors and Inheritance
If a will or trust names a minor as a beneficiary, then the will may also name a custodian to manage the bequest on behalf of the minor. If the will or trust does not name a custodian, then the executor, who is the person named in the will to manage the estate, may nominate a custodian. If the deceased died without a will and the court names an administrator to manage the estate and distribute the assets, the administrator can nominate a custodian. Minors can't directly control inherited assets under most circumstances.
Uniform Transfers to Minors
Most states have adopted the Uniform Transfers to Minors Act, a law covering accounts that hold assets on behalf of a minor. The UTMA rules allow a parent to appoint a custodian to manage inherited assets until the minor reaches the statutory age of majority set by the state's UTMA law -- which could be 18 or 21. State law also sets out the proper language; for example, in Minnesota, the appointment must be worded, "(custodian name) as custodian for (name of minor) under the Minnesota Uniform Transfers to Minors Act."
Setting Up a Trust
The creator of a trust, known as the grantor, places assets in a trust, and then appoints a trustee to manage those assets according to the terms he sets. A trust can name one or more persons as beneficiaries. For a minor, the trust may direct the trustee to manage the trust assets for the support, medical care and education of the minor until he reaches a certain age. Once the minor reaches the threshold age given in the trust, he would inherit the assets directly as a beneficiary. In the meantime, the trustee must file annual tax returns -- and most state laws require a regular accounting to the beneficiaries if they request one.
A lawyer experienced in estates and trusts, or an online legal document provider, can help set up a trust for the benefit of a minor, but state laws on trusts do not require attorney participation. A grantor can draw up a trust without legal assistance, include standard legal language that is available to the public, and then have the trust witnessed and notarized. He does not need to file the trust with a court or state agency, but the trust is not operative until the grantor legally transfers assets into the trust. According to the grantor's wishes, the trust may continue to control the assets, protecting them from careless spending, bankruptcy and legal claims, even after a minor reaches the age of majority. While legal assistance isn't required to set up a trust account for a minor beneficiary, because state laws and requirements vary, seeking legal guidance is often useful and advisable.