Planning an Inheritance for a College-Age Beneficiary
A 20-year-old may be perfectly capable of managing a checking account, paying rent, and making everyday financial decisions. Receiving a significant inheritance all at once is a different responsibility.
If your estate plan includes a child or grandchild who is in college or just beginning adulthood, it is worth considering what would happen if that person inherited sooner than you expected. The answer does not necessarily have to be handing over the entire inheritance at age 18 or choosing an arbitrary birthday when they receive it.
When an Inheritance Arrives Earlier Than Expected
Estate plans are created with the future in mind, but sometimes that future arrives much sooner than anyone anticipated.
Imagine parents with a 19-year-old daughter in college. Their estate plan leaves their assets to their daughter if both parents die. If the plan calls for an outright inheritance, she could suddenly be responsible for managing money, investments, property, and other assets while also grieving the loss of her parents.
The concern is not necessarily whether she is responsible. She simply may not have the experience to make decisions involving a substantial amount of money.
A Trust Can Provide Support Without Giving Everything at Once
Instead of leaving an inheritance outright to a young beneficiary, an estate plan can provide for assets to remain in trust.
The person creating the trust establishes its terms and selects a trustee to manage the assets. Depending on those terms, the trustee may be able to use trust funds for expenses such as education, housing, healthcare, and other needs while the beneficiary continues college and begins building an independent life.
Florida law recognizes discretionary trusts in which the trustee has discretion over distributions to or for the benefit of a beneficiary. The specific authority of the trustee depends on how the trust is written, which is why the distribution provisions deserve careful consideration.
This type of arrangement does not have to prevent a young adult from benefiting from an inheritance. Instead, it can provide access to financial support without placing responsibility for the entire inheritance in the beneficiary’s hands immediately.
Should the Beneficiary Receive Everything at a Certain Age?
One approach is to provide for an inheritance to be distributed at a particular age, such as 25 or 30.
Another is to make distributions in stages.
Neither approach is automatically right for every family. Age does not always tell you whether someone is prepared to manage significant assets. A beneficiary may be financially responsible at a young age but still benefit from having a trustee manage investments or other complicated assets.
Families can also consider whether assets should remain in trust longer rather than requiring a complete distribution at a particular birthday. Florida law provides certain protections for properly drafted spendthrift and discretionary trusts, although the extent of those protections depends on the circumstances.
Choosing the Trustee Matters
If an inheritance will remain in trust, choosing the trustee is just as important as deciding when distributions should be made.
The trustee may need to manage investments, evaluate requests for distributions, pay expenses on the beneficiary’s behalf, and follow the instructions in the trust. That requires financial judgment as well as an understanding of what you hoped the inheritance would accomplish.
For a college-age beneficiary, the trustee may also be someone the young adult will work with for years. Choosing someone who can handle both the financial responsibilities and that relationship deserves careful thought.
Make Sure the Rest of the Plan Works With the Trust
Creating a trust does not necessarily mean every asset will automatically pass through it. Life insurance, retirement accounts, and other assets with beneficiary designations may pass according to those designations rather than the terms of a will or trust.
That makes it important to review the estate plan as a whole. If the goal is to avoid a young beneficiary receiving certain assets outright, beneficiary designations and account ownership should be reviewed along with the trust itself.
If your estate plan includes a college-age child, grandchild, or other young adult beneficiary, our team at Wills, Trusts, Probate & Elder Law Firm, PLLC can help you consider how an inheritance should be managed and distributed. Call our office at 941-914-9145, or reach out through our website to discuss a plan that reflects your wishes and your beneficiary’s needs.
