When one is preparing their estate plan, it’s common for some of those assets to pass to children.
According to Steve Gariepy, partner and chair of the estate planning group at Hahn Loeser & Parks LLP, and Kevin Lenhard, partner at Kohrman, Jackson & Krantz, both in Cleveland, how these assets pass depend on the age of the child.
“Adults who receive assets outright from a bequest or inheritance generally have full control and enjoyment over the assets once received,” Lenhard said. “Minors, on the other hand, may be the ultimate recipient of the assets, but there is usually a guardian or custodian assigned to manage the assets until the minor becomes an adult.”
Gariepy added, “Minors need someone who is going to manage it for them. Guardians appointed by the court manage the property until the child turns 18. Another way of doing it is through a custodianship. In Ohio, custodianships can go up to age 25. A third way is it can be in a trust with an appointed trustee. The trust can have every imaginable type of provision. With older children, none of that comes into play.”
Especially for younger children, both professionals said asset management is key.
“Management for younger children is very important,” Gariepy said. “It can keep them on track of having a good education (if they use the assets for that) and a good work ethic.”
Lenhard added, “Most often, this is a good outcome, especially when the minor stands to inherit a large sum of money. Young beneficiaries normally are not equipped with the maturity or financial tools to prudently manage the assets.”
When drafting how assets should pass to children, Lenhard said these requests can be worded in various ways.
“There is no one formula,” Lenhard noted. “In general, when directing assets to a minor, the gift is normally given to a parent or guardian for the benefit of the minor or may be paid on behalf of the minor. An outright gift to an adult, say a very young adult at age 18, can be more tricky.”
He added young adults may be “immature” and unable to manage money, but as an adult “they have the right to do so.” In that situation, he still recommends a trustee to look over the assets.
But not all problems lie with younger children, Gariepy said. Many estate owners worry about “untrustworthy” older children, a factor that can also be accounted for.
“It is not that unusual where a family has two children and you have confidence in one (and) one you’re not so sure about,” he said. “So, there is trust management, where instead of a child getting everything at once, there can be a schedule planned out. That involves naming a trustee.”
Gariepy added the process of naming a trustee can be awkward for older children, especially if the named trustee is within the family.
“It’s better to have someone a bit more detached from the immediate family,” he said. “But, those provisions can be tailored to specific goals. You can detail what someone is trying to accomplish and protect it for that child.”
But the harder choice might be deciding which child gets what.
“There is not one ‘correct’ way to decide how to pass on one’s estate,” Lenhard said. “It depends on the views of the estate owner.”
He explained some take the view they’re going to control the distribution of wealth for generations to come, and others decide to let their family enjoy the assets as they see fit.
“I favor a middle ground – that is, to be proactive in planning your estate so wealth is preserved and managed while the beneficiaries mature and develop abilities to manage assets responsibly,” Lenhard said.
Gariepy suggests considering each child as an individual.
“It’s important for parents to consider what is best suited for each child,” he said. “It’s much easier for parents to do this ahead of time instead of leaving it to their children. If it’s done properly, the children will almost always honor that.”