The Problem Most People Don't See Coming
Most people are aware that a person cannot inherit or own assets until they reach the age of eighteen (in Texas and most states). What they don't realize is how fast this becomes a crisis when no one plans for it.
If a minor inherits property without proper planning, the state becomes the trustee. A court appearance is required for each and every distribution — every medical bill, every school expense, every pair of shoes. It is extremely burdensome, expensive, and slow. The court doesn't know your child. The court doesn't know your wishes. The court just follows a process.
The fix is simple: Include a trust provision in any will where a minor — child, grandchild, niece, nephew, or anyone under 18 — could possibly inherit property. It adds no expense and takes minutes to set up. Not having one can cost your family years of headaches.
The Scenario Nobody Thinks About
Here's where it gets people. You leave all your assets to your grown children — perfectly reasonable. But what happens if one of your children dies before you do, or dies in the same accident?
Under Texas law and most state laws, that child's share passes down to their children — your grandchildren. Even if you never mentioned your grandchildren in the will. This is called "per stirpes" distribution, and it means your three-year-old grandchild could suddenly be the beneficiary of a significant inheritance with no trust, no trustee, and no instructions.
Without a trust provision, a court-appointed guardian manages the money. That guardian must petition the court for every significant expenditure. It's not uncommon for this process to consume 10-15% of the inheritance in legal and administrative fees before the child ever sees a dollar.
The Beneficiary Designation Trap
A problem I see frequently — and I mean frequently — is that clients name their children as secondary beneficiaries on life insurance policies, 401(k)s, IRAs, and other non-probate assets without realizing that the children simply cannot inherit the money.
Consider a common situation: a married couple names each other as primary beneficiaries on everything, and names their minor children as secondary beneficiaries. If both parents die in a common accident, the life insurance company, the 401(k) administrator, and the IRA custodian all have the same problem — they cannot distribute funds to a minor. The money sits frozen while the court sorts it out.
This doesn't just happen with young parents. I've seen grandparents name minor grandchildren as beneficiaries on life insurance policies worth hundreds of thousands of dollars — with no trust in place to receive the funds. The intention was beautiful. The execution was a disaster.
What Proper Planning Looks Like
1. Add a Trust Provision to Your Will
This is non-negotiable. Every will should include language that creates a trust for any beneficiary who is a minor at the time of inheritance. The trust doesn't exist until it's needed — it costs nothing to maintain, nothing to fund, and nothing to set up beyond the language in the will itself. You name a trustee, set the terms (when distributions can be made, what they can be used for, at what age the child receives the balance outright), and you're done.
2. Choose Your Trustee Carefully
The trustee manages the money until the child reaches the age you specify (18, 21, 25 — it's your choice). This person will make financial decisions on behalf of your child or grandchild, potentially for years. Choose someone you trust with money, not just someone you love. These are not always the same person.
You should also name a successor trustee in case your first choice is unable or unwilling to serve when the time comes.
3. Review Your Beneficiary Designations
Go through every account that has a beneficiary designation — life insurance, 401(k), IRA, annuities, payable-on-death bank accounts — and ask yourself: if the primary beneficiary dies before me, who gets this money? If the answer is a minor, you have a problem that needs solving.
The solution is typically to name a trust as the contingent beneficiary rather than the minor directly. This requires coordination between your will (or living trust) and your beneficiary designations. It's not complicated, but it does require intentionality.
4. Don't Forget About Guardianship
A trust handles the money. A guardian handles the child. These are separate decisions, and they don't have to be the same person. In fact, there are good reasons to separate them — the person who is best suited to raise your child may not be the best person to manage a six-figure inheritance. Naming both a guardian and a trustee provides checks and balances.
Common Questions
What if my children are adults — do I still need this?
Yes. Your adult children may have minor children of their own. As explained above, if your child predeceases you, their share typically passes to their children — your grandchildren. A trust provision costs nothing and protects against a scenario you hope never happens but must plan for.
At what age should the trust distribute?
This is personal, but I generally recommend staggered distributions — a portion at 21, a portion at 25, and the balance at 30. Very few 18-year-olds are equipped to manage a significant inheritance responsibly. You can also give the trustee discretion to make distributions for health, education, and support before the final distribution age.
Can the trustee use the money for the child's living expenses?
Absolutely — that's the whole point. The trust language should give the trustee broad discretion to use funds for the child's health, education, maintenance, and support. The trustee can pay for school, medical care, housing, extracurricular activities — whatever the child needs. The trust just ensures that someone responsible is making those decisions, not a court administrator who has never met your family.
The Bottom Line
This is one of the easiest problems to prevent and one of the most painful to deal with after the fact. If there is any minor — child, grandchild, niece, nephew, or anyone under 18 — who could possibly inherit money from your estate either through your will or through a beneficiary designation, you need a trust provision in place. Period.
It takes minutes to add. It costs nothing extra. And it can save your family years of court proceedings and thousands of dollars in fees.
For more information call (512) 464-1110, email david@360networth.com, or book a free call.
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