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MINOR BENEFICIARIES – Guardians, Trustees and Custodians

Parents of young children often worry about who will take care of their children if the parents die prematurely.

Understandably, most parents’ primary concern in this regard is the day-to-day welfare of the children – i.e., who will ensure adequate shelter, clothing, food, education, etc.  The person responsible for these matters is called the Guardian of the Person and can be appointed in the parents’ Wills (or by a judicial proceeding in the absence of a Will).  What many parents fail to appreciate (at least until they are educated by a professional) is that the guardian of the person has no legal authority to manage the minors’ inherited assets.

There are four common ways in which a minor’s inheritance can be administered.

Responsible parents who attend to their estate planning have two practical options for appointing someone to manage inherited assets for their young children:

      1. Custodian – Parents can designate in their Wills a Custodian to manage assets for their children pursuant to the Maryland Uniform Transfers to Minors Act (“UTMA”).  The custodian is generally not required to produce detailed accountings for the Court.  All custodial property must be transferred to the child at age 21.
      2. Trustee – Parents can designate a Trustee in their Wills to manage assets pursuant to specific terms defined in the Will.  Trusts offer greater flexibility but also introduce greater complexity than custodial arrangements.  A more thorough discussion of the pros and cons of Trusts can be found here – Trusts for Descendants.

The other two common methods for managing a minor’s inheritance are almost never the product of a proper estate plan, but rather a failure to plan¹:

      1. Guardian of the Property – Unlike a guardian of the person, who can simply be appointed by the parents in their Wills, a Guardian of the Property must be appointed by the Court.  A Guardian must file annual fiduciary accountings with the Court.  Guardianship property must be transferred to the child at age 18.
      2. Court Restricted Account – The Court can order the establishment of a restricted account for the minor’s benefit, which can only be accessed with further Court approval.   Restricted account assets are transferred to the child at age 18.

The foregoing discussion addresses the methods by which minors can inherit assets from a parent’s probate estate – i.e., assets that are owned in the parent’s sole name at death and not subject to beneficiary designation.  Similar options are available for non-probate assets (most commonly, life insurance death benefits and retirement accounts), but special care is necessary to ensure one of the practical outcomes (Trustee or Custodian).

If you have minor children, please contact us to discuss your objectives and which options are most suitable for you.

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¹ A UTMA custodial arrangement is also an option where there is no estate plan, but it requires a Court order and is more cumbersome and costly than a planned appointment of a custodian in a Will.