Is 18 the Right Age to Give Assets to Your Child?

Many persons are concerned with leaving assets to children who are often not able to manage finances effectively themselves. Ensuring that financial support will be there for dependents left behind takes forethought and planning.

You are in the best position to judge your child’s maturity as you have observed their behavior. Your child might show responsibility in some areas, like taking care of younger siblings. At first there may have been mistakes that were corrected, but over time and with experience you may have grown to rely on that dependent's growing maturity to help care for the other siblings. Does that carry over to financial maturity? Possibly, but more often than not, a dependent does not have as much ongoing experience with handling large sums of money as an adult. Estate planning will help guide you through making these decisions on dependent care.

Will vs. Trust

A simple will typically leaves all assets to the surviving spouse and/or children. Guardianship of the children is determined through the court system. The guardian will be responsible for making financial and other decisions regarding the surviving dependents. As guardianship terminates at the age of 18, all of the assets provisioned to that heir in the will must be released to that person in one lump sum.

A trust provides you with more control over how those assets are distributed and when. You can designate at what age, usually between 21 and 35, your heirs can receive assets, and it establishes a framework for distributing those gifts. Unlike a will that must have court oversight, a comprehensive trust keeps your final wishes out of the courtroom, relieving your heirs from legal entanglements, publicity, and extra expense.

Uniform Transfers to Minors Accounts vs. General Trusts

The Uniform Transfers to Minors Act (UTMA) provides guidelines for transferring real or personal property, both tangible and intangible, but it is usually used to hold relatively small bank deposits. The provisions for bequeathing ownership to a successor are defined in this act. Depending on the type of transfer, the age of delivery in Nevada is between 18 and 25.1 You can also provide for a longer holding periods in a separate trust using general trust rules.

Under the UTMA, you can assign a trustee to handle the assets for the dependent until he or she reaches a predetermined age. With a general trust, you , can also designate distributions at a milestone (like graduating from college). The assets do not have to be handed over all at once; they can be released recurrently. You can provide guidelines for how the trustee manages the assets. You can provide rules for the types of disbursements that must be distributed to the dependent, like education or healthcare expenses, and determining factors for more discretionary expenditure, such as a weekly allowance. You can also set more restrictive rules if you believe your child may need protection from creditors.

Choose a trustee whom you can rely on to manage the estate in accordance with your wishes. It is best to review these wishes with that trustee and set forth any specific guidelines in the trust. You should also designate an alternate, in case the trustee you have named is ever not able to serve. If you cannot identify a trustee or alternate, consider a bank or financial institution to serve as trustee.

Deciding if your dependents should receive a lump sum of your estate at this landmark age requires careful consideration. A properly written trust is a better way to bequeath funds (and provide some lessons in finance) to your dependents. Contact Larry Rouse to determine how he can help you prepare a trust for your dependents.