Many of our clients have children or grandchildren who are minors. When drafting a Will for a client who has minor children and grandchildren, it is important to consider when the client would want the minor beneficiary to receive an inheritance.
While this is a personal decision and can vary depending on the maturity level presently exhibited by the prospective minor beneficiary, it is sometimes difficult to predict what even a mature minor may do in a situation of receiving a “windfall” in the form of an inheritance.
The University of Rochester Medical Center explains that the rational part of a minor’s brain is not fully developed until approximately twenty five (25) years of age.[1] Research has evidenced that a teenager’s brain responds more emotionally than a fully developed brain. Therefore, a teenager’s judgment and appreciation of long-term consequences of his or her actions may be less than ideal.[2]
We have all heard the extreme stories of young beneficiaries handling bequests inappropriately – the teenager receiving a brand new car, only to total the car within weeks of the gift, or, the sad account of a child with access to unlimited funds depleting those funds to support his or her substance abuse. Beyond the preservation of the property itself, the safety of the child is paramount.
One way to plan ahead for management of assets until a minor becomes able to responsibly handle his or her own property is through the use of the Pennsylvania Uniform Transfer to Minors Act (PUTMA).
PUTMA allows you to name a custodian to control, hold, manage and invest property of a minor. This property, while considered “owned” by the minor and not the custodian, is restricted by the custodial relationship.
A custodian for minor beneficiaries can and should be listed in the Will of any person who names a minor beneficiary, whether the beneficiary is a primary or contingent beneficiary. A single custodian can be nominated for each minor beneficiary. A successor custodian may also be named to step into the shoes of the custodian if the primary custodian is unable or unwilling to serve or continue to serve in the position.
By placing the PUTMA designation in your Will, you have control of who will serve as the custodian for a minor beneficiary. For example, you may want your daughter-in-law to be the custodian for her children (your grandchildren) if your son was to die before you and his share passed to his children (your minor grandchildren). Or, you may prefer to name one of your other children or a close family friend to serve as custodian.
The custodian will be held to a standard of care of that of a prudent person in managing the custodial property. A custodian can be reimbursed for expenses expended while serving in such capacity and may also be compensated for his or her services, should he or she desire.
PUTMA provides a default age upon which custodial property will be released to the minor beneficiary. That age is twenty-one (21) years of age. However, PUTMA also allows for an extension of that age to a maximum of twenty-five (25) years of age. Your Will can state at which age you would feel comfortable having the minor beneficiary have full access to his or her inheritance.
If a client wishes to have funds controlled for a longer period of time, for example, until age thirty five (35), this can be accomplished with a different planning mechanism, such as a testamentary trust.
If you have a minor beneficiary and your Will does not address what should happen with his or her inheritance, it may be a good time to set up an appointment to review and update your document. While a PUTMA designation may seem like a simple provision in a Will, it could have lasting impact on a minor’s inheritance and well being.
[1] Understanding the Teen Brain, University of Rochester Medical Center Health Encyclopedia, See: https://www.urmc.rochester.edu/encyclopedia/content.aspx?ContentTypeID=1&ContentID=3051, Last accessed May 31, 2016.
[2] Id.
