Immature Heirs?

Immature Heirs?

Leaving an inheritance to heirs who are minors presents significant problems.  But the same is true for adult heirs who lack the maturity to handle a sizable inheritance.

A limited solution is available under the Idaho Uniform Gifts to Minors Act.  That Act allows a parent to have the Executor or other designated Custodian hold onto an inheritance until the child reaches age 21, at which time the inheritance must be delivered to the heir.

But many parents doubt that their children will be financially mature, even at age 21.  Most parents would look to ages between 25 and 30 to be the point when financial maturity begins to settle in.  But holding an inheritance past age 21 is not an option under the Gifts to Minors Act. 

The better solution for most parents is to set up a Family Trust or Living Trust.  Utilizing this tool permits the parents to do several important things.

First, the actual inheritance can be delayed past age 21.  A parent can designate any age they desire for the final distribution of an inheritance.  In fact, a parent who believes that a child will never be financially mature can retain the inheritance in the trust — under distributions controlled by the trustee — until until they are used up by the heir.

Second, the inheritance can be distributed in phases.  For example, the heir might be given 10% of the inheritance at age 22.  Then 20% more at age 26.  And the remaining bulk of the inheritance at age 30.  This approach turns the distribution process into an educational one for the child.  If the child “blows through” the initial small distribution, he or she will learn a valuable lesson in that process that will make it more likely that the final phase of the inheritance will be handled well.

Third, even though the bulk of the inheritance is held in the trust until a later age, the trustee of the trust can also be given authority to use the trust funds to pay for the education of the child while he or she is still growing up.

All in all, the establishment of a Family Trust or Living Trust is an excellent tool for dealing with an immature heir.

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