In Every Generation…
During the upcoming holiday season, we are called upon to pass teachings on to the next generation. In a different scheme of things, many of us plan to pass on our wealth to the next generation. Most of my clients leave their wealth to their surviving spouse and then to their children, grandchildren, nieces and nephews. A majority of those children are minors, meaning under the age of 18 or 21.
So what? It is illegal for a minor to own property or an asset of any kind – a bank account, investment, real estate, etc. This is why we must be custodians for our children’s accounts in the U.S.
So what happens if a minor child inherits from a parent? The minor child (or children) cannot own the property or asset they are supposed to inherit. Moshe and Tamar reside in Israel. They both have dual citizenship. They own assets that are located in the U.S. as well as assets that are located in Israel. They have three minor children. They have Wills leaving the assets to each other and then to their children equally. They came to me thinking they had everything in order.
However, they were unaware that if a minor inherits an asset (even together with siblings or an adult), a guardianship must be created to hold the assets for the children until they are old enough to inherit the assets by law. A guardianship must be established in Israel and in each state in the United States in which Moshe and Tamar own assets and leave them to their children to inherit.
A guardianship appears to be a prudent protective measure. Tamar and Moshe are honest that they do not actually want their minor children to inherit outright because they feel that they will not be ready to manage that amount of wealth. Unfortunately, when they investigate further (by coming to see me and then reading up online) Moshe and Tamar find that:
- A guardian will have to be appointed in each state in which they own assets – several different sets of papers to file and fees to pay;
- A guardian will have to post a bond in some states to be appointed, if they do not reside in that state;
- The guardian that Moshe and Tamar will name in their Will to manage the children’s funds might not be the person that the Court will appoint as guardian. As the Court assesses what it finds best for the children, it might not reach the conclusion that the person names is best in its opinion;
- The Court charges a fee of approximately 2% (changes from state to state) per year of the value of the assets in the guardianship, to maintain it, for the duration of the guardianship (so over the course of 10 years, 20% of the value of the assets will be paid to the Court); and
- Should the guardian wish to do anything with the assets, Moshe and Tamar found that the guardian will have to ask for the Court’s permission, even if the guardian believes it is in the children’s best interests and it is a run of the mill transaction involving the assets. This could take months to sell the family home, or establish a college fund, or pay off a mortgage, etc. due to the bureaucracy involved in dealing with the Court.
Moshe and Tamar decided that leaving assets to the children outright might not be in the children’s best interests, nor in the family’s best interests. They decided to utilize a number of other measures to ensure that their family’s wealth is in fact passed on to the children, but in such a way as to eliminate all of the above problems their children would encounter, were a guardian need to be appointed. Moshe and Tamar will still be able to have trusted adults supervise their children’s wealth until their children will be old enough to do so themselves.
If we pass wealth on to our children, shouldn’t we pass on the wealth of our knowledge in this area (and so many others) as well? Go see your estate planning specialist to ensure your heirs, if they are heirs, will be able to inherit your hard-earned wealth without the pitfalls of a guardianship.
Experienced US Estate Planning Attorney Felicia M. Seaton will help you safeguard your family’s best interests while enduring difficult times. She can help you formulate & implement a comprehensive plan to give you peace of mind. Contact her today click here or call 0526182582/US: 3028923336