What Happens When a Minor Inherits Money?

Leaving money to a child can sound simple. Name the child in the will, identify the amount, and the gift is handled.

However, the plan also needs to address management. A child may be entitled to property without being ready or legally able to handle it independently.

Who will manage the money?

The answer depends on how the gift is made. A properly created trust can identify a trustee and provide instructions for managing and distributing the property. A custodial transfer may offer another option. In other circumstances, a conservatorship may need to be considered.

These arrangements are not interchangeable. Each has different duties and rules about when the child receives control.

What is a custodial transfer?

Iowa Code section 565B.5 allows a personal representative or trustee to make a transfer to a custodian when the governing will or trust authorizes it. The statute addresses the person who serves as custodian and how the transfer is made.

Section 565B.20 requires transfer of custodial property to the minor at age twenty-one, or to the minor’s estate upon an earlier death. A parent should not assume that this arrangement allows control to be delayed indefinitely.

How might a trust be different?

A trust can be drafted around the intended purpose of the gift and an appropriate distribution structure. For example, the family may want funds available for education and support while postponing an outright distribution.

The details need to be properly written into the trust. A general statement that someone should watch the money does not explain spending standards, replacement trustees, or what happens if the child dies before receiving the balance.

Does the child’s caregiver control the inheritance?

The person caring for a child and the person managing inherited property may have different roles. Choosing a guardian does not by itself settle every financial-management question.

Before leaving a significant gift to a minor, consider the child’s age, the purpose of the gift, the person you trust to administer it, and when control should pass. Then review the documents with an attorney so the legal arrangement matches those intentions.

The amount of the inheritance is only one part of the decision. The plan for using and protecting it can matter just as much.

Tyler ThompsonAuthor