Paul O. Dillon, Attorney at Law

Why Do I Need to Name an Executor?

When someone dies, they leave behind an estate consisting of their assets. Someone has to manage the estate property, taking on tasks like paying creditors and ensuring that assets are distributed according to the decedent’s wishes. The executor of an estate, also called a personal representative, is the person who takes on this role, as explained in the article “What Is An Executor Of An Estate?” from Forbes.

If the deceased has a last will, it includes the name of the person who serves as their executor. However, if there is no will, or if the will doesn’t name an executor, a court will appoint someone—not necessarily a family member—to serve in this role.

The executor is responsible for carrying out the wishes of the decedent, including gathering all of the important documents, including the last will, filing any required court paperwork, managing assets until they are distributed and facilitating the transfer of money and property to beneficiaries.

In most cases, assets must pass through probate, a legal process in which the court validates the will, issues letters testamentary giving the executor the right to do their job, oversees the distribution of assets to beneficiaries and ensures that creditors are paid.

If you have an estate plan created by an experienced estate planning attorney, they will ask you to choose someone to serve as your executor. This needs to be someone you can count on to fulfill your wishes, who you trust implicitly and who you know will be able to manage submitting and completing paperwork for the court, the IRS and any other government agencies.

Can a beneficiary also be an executor? A beneficiary often does serve as the executor since many people name their spouse or adult child to act as their personal representative and manage their estate after their death.

An executor has a lot to do:

• Obtaining a copy of the will, death certificate and other paperwork.
• Inventorying the deceased individual's assets, determining which passes through probate and which passes outside of probate.
• Managing the deceased's assets, such as paying the mortgage and utilities.
• Submitting the will to be probated in the relevant court.
• Notifying all parties who may have a claim against the estate.
• Overseeing the probate process.
• Paying any debts.
• Facilitating the transfer of assets.
• Filing taxes for the person’s last living year and the estate tax.

The executor often retains the services of an estate planning attorney to manage these tasks, ensuring that they are carried out properly and in a timely manner.

Reference: Forbes (Feb. 5, 2024) “What Is An Executor Of An Estate?”

Documents You’ll Need to Update after Divorce

Divorce is a challenging and emotionally draining experience. Even when the divorce process is over, there’s still more to be done. Failing to update beneficiaries after a divorce can have serious consequences, as reported in The National Law Review article “The Crucial Importance of Updating Documents After Divorce.”

A recent case, In the Matter of the Estate of Michael C. Jones, illustrates what can go wrong. The couple divorced in 2018, and their settlement required Michael to pay Jeanine $200,000 with a provision that any outstanding payments would become a debt owed by his estate in the event of his death. They maintained an amicable relationship. However, in 2019, Michael became seriously sick, underwent emergency surgery, and died just days after the surgery.

Before passing, Michael executed a banking Power of Attorney, appointing Jeanine as his POA while in palliative care. She organized his funeral, paid his bills and took care of their former marital home. At the time of his death, Michael had paid Jeanine about $100,000 as per the terms of their divorce settlement.

While caring for his home, Jeanine discovered several US series EE bonds that designated her as the pay-on-death beneficiary. She cashed them in and received more than $77,000.

After his death, Michael’s daughter from a prior relationship applied to the court to be appointed as administrator of the estate. She took the position that since Jeanine had received $77,000 from the bonds, the estate only owed her $23,000 as per the terms of the divorce settlement. Jeannine objected, asserting the bonds were not included in the money owed her in accordance with the divorce.

Under New Jersey law, a divorce or annulment automatically revokes any beneficiary nominations on financial instruments, unless explicitly stated otherwise. It also terminates the former spouse’s interest in jointly held property. The law aims to protect individuals who fail to update beneficiary designations.

However, federal law governs the beneficiary designation on treasury bonds, argued Jeanine. In this case, federal law supersedes state law. The trial court disagreed and included the $77,000 as part of the $200,000 owed to Jeanine. The case went to the Appellate Division, which found for Jeanine, stating that federal law takes precedence over state law, and she was entitled to both amounts.

There are a few takeaways from this case. First, anyone undergoing a divorce should check how their state laws treat divorce’s impact on beneficiary nominations on financial instruments and jointly held property. Second, change beneficiary designations on every document and financial instrument—going through old file folders and investment records to search for anything important. Third, if your wish is for your ex-spouse to remain as a beneficiary, include this in the settlement documents. Fourth, speak with your estate planning attorney about your divorce so any necessary changes can be made to your estate plan promptly, including wills, trusts and any documents used for incapacity.

Divorce, like estate planning, requires attention to detail to ensure that your wishes are followed.

Reference: The National Law Review (Jan. 20, 2024) “The Crucial Importance of Updating Documents After Divorce”

Do Heirs Pay Credit Card Debt?

When you consider the average credit card balance in 2023 was $6,365, chances are many Americans will leave an unpaid credit card balance if they die suddenly. A recent article from yahoo! finance asks and answers the question, “What happens to credit card debt when you die?”

Many people think death leads to debt forgiveness. However, this isn’t the case. Some forms of debt, like federal student loans, may be discharged if the borrower dies. However, this is the exception and not the rule.

Credit card debt doesn’t evaporate when the cardholder goes away. It generally must be paid by the estate, which means the amount of debt will reduce your loved one’s inheritance. In some cases, credit card debt might mean they don’t receive an inheritance at all.

Outstanding credit card debt is paid by your estate, which means your individual assets owned at the time of death, including real estate, bank accounts, or any other valuables acquired during your life.

Upon death, your will is submitted to the court for probate, the legal process of reviewing the transfer of assets. It ensures that all debts and taxes are paid before issuing the remaining assets to your designated heirs.

If you have a will, you likely have an executor—the person you named responsible for carrying out your wishes. They are responsible for settling any outstanding debts of the estate. If there’s no will, the court will appoint an administrator or a personal representative to manage the assets.

In most cases, your heirs won’t have to pay off your credit card debt with their own funds. However, you may be surprised to learn there are exceptions:

• Married people living in community property states. In a community property state, the deceased spouse is responsible for repaying credit card debt incurred by their spouse. In 2023, those states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
• Credit cards with joint owners. If you had a joint credit card shared with a partner or relative, the surviving joint owner is responsible for the full outstanding balance. Only joint users are responsible for repaying credit card debt. If your partner was an authorized user and not an owner, they aren’t legally responsible for the debt.

Debt collectors may try to collect from family members, even though the family members are not responsible for paying credit card debts. The debt collector may not state or imply that the family member is personally responsible for the debt, unless they are the spouse in a community property state or a joint account owner.

If a debt collector claims you personally owe money, request a debt validation letter showing your legal responsibility for the debt. Otherwise, you have no legal obligation to pay for it yourself.

When someone dies, their estate is responsible for paying debts, including credit card debt. However, debt is repaid in a certain order. In general, unsecured debt like credit card balances are the lowest priority and paid last.

Some accounts are exempt from debt payment:

• Money in a 401(k) or IRA with a designated beneficiary goes directly to the beneficiary and is exempt from any debt repayment.
• Life insurance death benefits go directly to the named beneficiary and go directly to the beneficiaries.

If a loved one has died and they had credit cards, stop using any of their cards, even if you are an authorized user or joint owner. Review the deceased’s credit report to learn what accounts are open in their name and the balance on each account. Notify credit card issuers and alert credit bureaus—Equifax, Experian, and TransUnion. You may need to submit a written notification, a copy of the death certificate and proof of your being an authorized person to act on behalf of the estate.

Talk with an estate planning attorney to find out how your state’s laws treat the outstanding debt of a deceased person, as these laws vary by state.

Reference: yahoo! finance (Nov. 9, 2023) “What happens to credit card debt when you die?”

Some Expenses are Paid by Estate and Some by Beneficiary

Settling an estate can be complex and time-consuming—it all depends on how much “estate planning” was done. According to a recent article from yahoo! Finance titled “What Expenses Are Paid by the Estate vs. Beneficiary?,” the executor is the person who creates an inventory of assets, determines which expenses need to be paid and distributes the remainder of the estate to the deceased’s beneficiaries. How does the executor know which monies are paid by the estate and which by the beneficiaries?

First, let’s establish what kind of expenses an estate pays. The main expenses of an estate include:

Outstanding debts. The executor has to notify creditors of the decedent’s death and the creditors then may make a claim against the estate. Because a person dies doesn’t mean their debts disappear—they become the debts of the estate.

Taxes. There are many different taxes to be paid when a person dies, including estate, inheritance and income tax. The federal estate tax is not an issue, unless the estate value exceed the exemption limit of $12.92 million for 2023. Not all states have inheritance taxes, so check with a local estate planning attorney to learn if the beneficiaries will need to pay this tax. If the decedent has an outstanding property tax bill for real estate property, the estate will need to pay it to avoid a lien being placed on the property.

Fees. There are court fees to file documents including a will to start the probate process, to serve notice to creditors or record transfer of property with the local register of deeds. The executor is also entitled to collect a fee for their services.

Maintaining real estate property. If the estate includes real estate, it is likely there will be expenses for maintenance and upkeep until the property is either distributed to heirs or sold. There may also be costs involved in transporting property to heirs.

Final expenses. Unless the person has pre-paid for all of their funeral, burial, cremation, or internment costs, these are considered part of estate expenses. They are often paid out of the death benefit associated with the deceased person’s life insurance policy.

What expenses does the estate pay?

The estate pays outstanding debts, including credit cards, medical bills, or liens.

• Appraisals needed to establish values of estate assets
• Repairs or maintenance for real estate
• Fees paid to professionals associated with settling the estate, including executor, estate planning attorney, accountant, or real estate agent
• Taxes, including income tax, estate tax and property tax
• Fees to obtain copies of death certificates

The executor must keep detailed records of any expenses paid out of estate assets. The executor is the only person entitled by law to see the decedent’s financial records. However, beneficiaries have the right to review financial estate account records.

What does the beneficiary pay?

This depends on how the estate was structured and if any special provisions are included in the person’s will or trust. Generally, expect to pay:

• Final expenses not covered by the estate
• Personal travel expenses
• Legal expenses, if you decide to contest the will
• Property maintenance or transportation costs not covered by the estate

Some of the expenses are deductible, and the executor must use IRS Form 1041 on any estate earning more than $600 in income or which has a nonresident alien as a beneficiary.

An estate planning attorney is needed to create a comprehensive estate plan addressing these and other issues in advance. If little or no planning was done before the decedent’s death, an estate planning attorney will also be an important resource in navigating through the estate’s settlement.

Reference: yahoo! finance (Dec. 29, 2022) “What Expenses Are Paid by the Estate vs. Beneficiary?”

What Is Included in an Estate Inventory?

The executor’s job includes gathering all of the assets, determining the value and ownership of real estate, securities, bank accounts and any other assets and filing a formal inventory with the probate court. Every state has its own rules, forms and deadline for the process, says a recent article from yahoo! Finance titled “What Do I Need to Do to Prepare an Estate Inventory for Probate,” which recommends contacting a local estate planning attorney to get it right.

The inventory is used to determine the overall value of the estate. It’s also used to determine whether the estate is solvent, when compared to any claims of creditors for taxes, mortgages, or other debts. The inventory will also be used to calculate any estate or inheritance taxes owed by the estate to the state or federal government.

What is an estate asset? Anything anyone owned at the time of their death is the short answer. This includes:

• Real estate: houses, condos, apartments, investment properties
• Financial accounts: checking, savings, money market accounts
• Investments: brokerage accounts, certificates of deposits, stocks, bonds
• Retirement accounts: 401(k)s, HSAs, traditional IRAs, Roth IRAs, pensions
• Wages: Unpaid wages, unpaid commissions, un-exercised stock options
• Insurance policies: life insurance or annuities
• Vehicles: cars, trucks, motorcycles, boats
• Business interests: any business holdings or partnerships
• Debts/judgments: any personal loans to people or money received through court judgments

Preparing an inventory for probate may take some time. If the decedent hasn’t created an inventory and shared it with the executor, which would be the ideal situation, the executor may spend a great deal of time searching through desk drawers and filing cabinets and going through the mail for paper financial statements, if they exist.

If the estate includes real property owned in several states, this process becomes even more complex, as each state will require a separate probate process.

The court will not accept a simple list of items. For example, an inventory entry for real property will need to include the address, legal description of the property, copy of the deed and a fair market appraisal of the property by a professional appraiser.

Once all the assets are identified, the executor may need to use a state-specific inventory form for probate inventories. When completed, the executor files it with the probate court. An experienced estate planning attorney will be familiar with the process and be able to speed the process along without the learning curve needed by an inexperienced layperson.

Deadlines for filing the inventory also vary by state. Some probate judges may allow extensions, while other may not.

The executor has a fiduciary responsibility to the beneficiaries of the estate to file the inventory without delay. The executor is also responsible for paying off any debts or taxes and overseeing the distribution of any remaining assets to beneficiaries. It’s a large task, and one that will benefit from the help of an experienced estate planning attorney.

Reference: yahoo! finance (Dec. 3, 2022) “What Do I Need to Do to Prepare an Estate Inventory for Probate”

What Exactly Does an Executor Do?

The executor is usually a spouse, close family member or trusted friend. If no such person is available, a qualified compensated person can be appointed under state law, according to a recent article from The Street entitled “Top Duties of an Estate Executor and How to Carry Them Out.”

The executor needs to be trustworthy and organized, since there are many details involved. Depending on the complexity and size of the estate, the executor’s duties could include additional tasks. However, the following are the five main categories:

• Filing the will with the court
• Gathering documents
• Paying debts and taxes and collecting from any debtors
• Closing out Social Security accounts, insurance policies and retirement accounts; and
• Maintaining any real estate property, until it is sold or ownership is transferred to an heir.

Once the will is filed with the court and the will is deemed to be valid, the court will issue Letters Testamentary, and the executor will be empowered to go forward with their tasks as directed by the will.

Gathering documents.

The executor needs to gather documents, including:

• Death certificates
• Deeds and titles of ownership
• Trust documents; and
• Insurance policies.

Combine assets and close accounts.

The executor needs to contact the decedent’s banks, credit card companies, lenders, leasing companies and any accounts holding assets.

The executor also applies to the IRS for an estate tax ID number, also known as an EIN, and opens an estate bank account. This is where any assets are deposited, including proceeds from the sale of any assets.

The Social Security Administration needs to be notified of the death. Depending on the date of death, the last Social Security deposit may be recouped from the decedent’s bank account. If there is an eligible survivor, the executor may help the spouse or dependent apply for benefits.

Collect money owed and pay debts.

The executor may help beneficiaries file for life insurance proceeds.

The executor needs to examine and adjudicate any outstanding debts owed to the decedent and handle any creditor claims. The debts are not the financial responsibility of the executor and should be paid only from funds in the estate account.

With good planning, the executor can ensure an orderly and uncontested flow of assets from the deceased’s estate to heirs. This includes consultation with the testator while they are still living and can discuss their wishes and plan for a smooth transition. This is certainly not the most comfortable discussion. However, it can make the process easier for all concerned, if done with kindness and care in advance.

Reference: The Street (Dec. 5, 2022) “Top Duties of an Estate Executor and How to Carry Them Out”

Top 10 Success Tips for Estate Planning

Unless you’ve done the planning, assets may not be distributed according to your wishes and loved ones may not be taken care of after your death. These are just two reasons to make sure you have an estate plan, according to the recent article titled “Estate Planning 101: 10 Tips for Success” from the Maryland Reporter.

Create a list of your assets. This should include all of your property, real estate, liquid assets, investments and personal possessions. With this list, consider what you would like to happen to each item after your death. If you have many assets, this process will take longer—consider this a good thing. Don’t neglect digital assets. The goal of a careful detailed list is to avoid any room for interpretation—or misinterpretation—by the courts or by heirs.

Meet with an estate planning attorney to create wills and trusts. These documents dictate how your assets are distributed after your death. Without them, the laws of your state may be used to distribute assets. You also need a will to name an executor, the person responsible for carrying out your instructions.

Your will is also used to name a guardian, the person who will raise your children if they are orphaned minors.

Who is the named beneficiary on your life insurance policy? This is the person who will receive the death benefit from your policy upon your death. Will this person be the guardian of your minor children? Do you prefer to have the proceeds from the policy used to fund a trust for the benefit of your children? These are important decisions to be made and memorialized in your estate plan.

Make your wishes crystal clear. Legal documents are often challenged if they are not prepared by an experienced estate planning attorney or if they are vaguely worded. You want to be sure there are no ambiguities in your will or trust documents. Consider the use of “if, then” statements. For example, “If my husband predeceases me, then I leave my house to my children.”

Consider creating a letter of intent or instruction to supplement your will and trusts. Use this document to give more detailed information about your wishes, from funeral arrangements to who you want to receive a specific item. Note this document is not legally binding, but it may avoid confusion and can be used to support the instructions in your will.

Trusts may be more important than you think in estate planning. Trusts allow you to take assets out of your probate estate and have these assets managed by a trustee of your choice, who distributes assets directly to beneficiaries. You don’t have to have millions to benefit from a trust.

List your debts. This is not as much fun as listing assets, but still important for your executor and heirs. Mortgage payments, car payments, credit cards and personal loans are to be paid first out of estate accounts before funds can be distributed to heirs. Having this information will make your executor’s tasks easier.

Plan for digital assets. If you want your social media accounts to be deleted or emails available to a designated person after you die, you’ll need to start with a list of the accounts, usernames, passwords, whether the platform allows you to designate another person to have access to your accounts and how you want your digital assets handled after death. This plan should be in place in case of incapacity as well.

How will estate taxes be paid? Without tax planning properly done, your legacy could shrink considerably. In addition to federal estate taxes, some states have state estate taxes and inheritance taxes. Talk with your estate planning attorney to find out what your estate tax obligations will be and how to plan strategically to pay the taxes.

Plan for Long Term Care. The Department of Health and Human Services estimates that about 70% of Americans will need some type of long-term care during their lifetimes. Some options are private LTC insurance, government programs and self-funding.

The more planning done in advance, the more likely your loved ones will know what to do if you become incapacitated and know what you wanted when you die.

Resource: Maryland Reporter (Sep. 27, 2022) “Estate Planning 101: 10 Tips for Success”

Who Should Be Your Executor?

While the executor is usually a spouse or close family member, you can name anyone you wish to be your executor. A bank, estate planning attorney, or professional trustee at a trust company may also serve as the executor, according to a recent article from Twin Cities-Pioneer Press titled “Your Money: What you need to know about naming an executor.”

Regardless of who you select, the person has a legal duty to be honest, impartial, financially responsible and to put your interests ahead of their own. This person and one or two backup candidates should be named in your will, just in case the primary executor declines or is unable to serve.

How does someone become an executor? When your will is entered into probate, the court checks to be sure the person you name meets all of your state’s legal requirements. Once the court approves (and usually the court does), then their role is official and you executor can get to work.

The executor has many responsibilities. You can help your executor do a better job by making sure that financial and personal business documents are organized and readily available. Here are some, but not all, of the executor’s tasks:

• Making an inventory of all assets and liabilities
• Giving notice to creditors: credit card companies, banks, mortgage companies, etc.
• Filing a final personal tax return and filing the estate tax return
• Paying any debts and taxes
• Distributing assets according to the directions in the will and in compliance with state law
• Preparing and submitting a detailed report to the court of how the estate was settled

If there is no will, or if no executor is named in the will, or if the executor can’t serve, the court will appoint a professional administrator to settle your estate. It won’t be someone you know. Your family may not like all of the decisions made on your behalf, but there won’t be any options available.

Does an executor get paid? A family member may or may not wish to be paid. However, given how much time it takes to settle an estate, you might feel it’s fair for them to be compensated. The amount varies depending on where you live, but you can leave the person between 1% to 8% of your total estate. A professional administrator will likely cost considerably more.

How do you document your estate to help out the executor? If you think this task is too onerous, imagine how a family member will feel if they have to conduct a scavenger hunt to identify assets and debts. If a professional administrator ends up doing this work, it will take a bigger bite out of your estate and leave loved ones with a smaller inheritance.

Start by making a list of all of your assets and liabilities, plus a list of all advisors who help with the business side of your life. Recent tax returns will be helpful, as will contact information for your estate planning attorney, CPA and financial advisor. You should include retirement accounts, life insurance policies and any assets without beneficiary designations.

Reference: Twin Cities-Pioneer Press (June 25, 2022) “Your Money: What you need to know about naming an executor”

Some Must-Have Documents are Always Needed

Sad but true—we never know when we’re going to die. Estate planning lawyers who help protect assets for heirs or charities know from previous experience what happens when there’s no plan for their passing. This blunt assessment comes from the aptly titled article “Morbid Money: 8 Things to Do Before You Die” from Millie.

When someone dies without a will, called “dying intestate,” the laws of the state are in charge of your estate assets subject to probate and the people and/or pets who depend on you. The state doesn’t know your dog hates your brother and you wanted your money to go to your life partner and not your parents or siblings. If you and your life partner aren’t married, your partner has no legal right to make any claims on your estate, regardless of your wishes.

Try to think of planning for death not as a morbid chore, but a gift to deliver to loved ones. Here’s what you’ll need to do:

Make an inventory of usernames and passwords used for everything from bank accounts to health insurance portals, streaming services, gym memberships, mobile phones and social media accounts. Someone will need to access this information, cancel subscriptions, and erase accounts.

Make a record of your assets. This includes retirement savings accounts, college savings accounts, life insurance, investments, real estate property, businesses, and any possessions of financial and sentimental value. Include names for your estate planning attorney, financial advisor and CPA.

Make a list of your debts. Like it or not, creditors and debts get paid first from an estate, so your executor will need to know how big or small your debts are. Heirs will also have a more realistic idea of what they may be inheriting.

Are your advanced directives complete and updated? This includes a living will, which tells what medical treatments you do or do not want if you become terminally ill or injured. You’ll also want a power of attorney to name the person who you want to manage your finances, if you are unable.

Have a will prepared by an experienced estate planning attorney. Another expression commonly heard from estate planning attorneys: dying without a will is like driving without a license. Anyone over age 18 should have a will, but less than half of all American adults do. This is the legal document used to direct how you want your assets distributed. If you have minor children, the will names the person you want to raise your minor children.

Check beneficiary designations. Some assets are not included in your will because they pass directly to individually appointed beneficiaries, referred to as designated beneficiaries. Your life insurance policies, pension plan and/or retirement accounts are the most likely to have a designated beneficiary assigned to inherit the asset on your passing. Some banking and investment accounts do as well. Check these to be sure they are up to date. If you opened a 401(k) account with your first job and have married since then, you likely want to update your beneficiary to be your spouse.

Write a letter of intent. This is not a legally enforceable document in most states. However, it can be used to show the court your intent, if anyone questions your will. If you have personal possessions you want to go to certain people, this can be in your will but should also be in your letter of intent. This is also where you share your wishes for the disposition of your body and memorial services, not in your will. By the time your will is found, the “disposition” of your remains may well be completed. Without your written guidance, this can be a burden for loved ones who can only guess about your wishes.

Review your plan every three to five years, and every time a large event in your life occurs. Don’t keep these documents a secret. A trusted person needs to know where these documents can be found so they can act on your behalf when they need to, whether the date is a year or a decade from now.

Reference: Millie (May 17, 2022) “Morbid Money: 8 Things to Do Before You Die”

Can Grandchildren Receive Inheritances?

Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are not legally allowed to own property.  With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.

If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as a guardian of the estate of the minor child, which takes time. The guardian may not be the child’s parent.

The parent of a minor child may not invest and grow any funds, which in some states are required to be deposited in a federally insured account. Periodic reports must be submitted to the court, and audits will need to be done annually. Guardianship requires extensive reporting and any monies spent must be accounted for.

When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the guardian nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.

There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.

One option is to leave it to the child’s parent. This takes out the issue of court involvement but may has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.

Many states have Uniform Transfers to Minors Accounts. In Pennsylvania, it is PUTMA, in New York, UTMA and in California, CUTMA. Gifts placed in these accounts are held in custodianship until the child reaches 18 (or 21, depending on state law) and the custodian has a duty to manage the property prudently. Some states have limits on the amount in the accounts, and if the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.

For most people, a trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.

A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.

A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.

There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.

Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”