What Do You Mean, "Minors Can't Inherit"?
As a parent, part of providing for your child is documenting your choice of guardian should you pass away unexpectedly. Almost as important as naming a guardian is determining how your child will be provided for financially.
Under current Virginia law, children under 18 cannot receive property (in practice, this is usually money, though it can be land) outright, in their own name. This works against most parents’ desire for their child to have access to the money in order to provide for the child until they reach 18. Fortunately, parents have a few options to choose from when it comes to taking care of their family’s needs.
Guardian of the Estate
When minor children are the outright beneficiaries of assets, either because they are named as beneficiaries of life insurance policies, retirement accounts, or other assets, or because they inherit property in a will that does not keep the money in trust or does not provide for distribution to a custodian under the Uniform Transfers to Minors Act, then it will be necessary for the court to appoint a guardian of the estate (property)of the minor.
Guardians of the estate of a minor appointed by the court must give bond in the amount equal to the value of the minor’s estate, and provide surety on that bond, unless surety is waived by statute or in the deceased parent’s will. The guardian of a minor’s estate must file an inventory of the minor’s property with the local Commissioner of Accounts within four months of becoming the guardian, file an initial accounting with the Commissioner of Accounts within six months, and file an accounting each year. There are fees, based on the value of the minor’s estate, associated with filing accountings.
Uniform Transfers to Minors Act (UTMA)
Under the Virginia Uniform Transfers to Minors Act (UTMA), property is transferred to a custodian who holds and administers the property for the benefit of a minor. The nomination of a custodian can be made in a will, trust, deed, an instrument exercising a power of appointment, or in a beneficiary designation. An UTMA custodianship may be extended until age twenty-one (21). Transfers can only be made for a single beneficiary and there can only be a single custodian. The property in an UTMA custodianship must be distributed to the child completely when they reach 21 years old.
A parent may also create a trust under his or her will (called a testamentary trust). This approach is not generally recommended for several reasons: (1) A testamentary trust must go through probate, which can delay the distribution of the assets before the trust can be funded. (2) The probate process will reduce the assets available. (3) Testamentary trusts only go into effect upon the parent’s death so that assets are not necessarily available to provide for a child in case of the parent’s incapacity. (4) Testamentary trust trustees must file annual accountings with the Commissioner of Accounts (in addition to probate fees) unless the will waives the accounting requirement. The annual accounting fees are based on the value of the property held in trust.
Revocable Living Trust
If a parent wishes to use a trust, a revocable living trust offers much more flexibility in the distribution of assets than outright distributions, UTMA custodianships, and testamentary trusts. Unlike in testamentary trusts, assets in a revocable trust do not have to go through the probate process. Unlike UTMA custodianships, there is no mandatory distribution age. Parents are able to customize the distribution scheme of their revocable living trust to suit their preferences and their child(ren)’s unique strengths and needs.
For further reading, see the Virginia State Bar Trusts and Estates Spring 2009 Newsletter.