Estate planning is an essential aspect of securing your family’s future, especially when you have minor children. Protecting your minor child’s inheritance requires careful and often complex estate planning because of the issues involved in gifting to minors. By taking the time to plan properly, you can provide financial security and peace of mind for your child’s future. With that in mind, the Los Angeles attorneys at Schomer Estate & Wealth Advisors discuss how to protect your child’s inheritance and ensure that your assets are managed and distributed according to your wishes.
Why Is Protecting My Child’s Inheritance Complicated?
The moment you became a parent you likely began to factor your child into every decision you made. Ensuring that your child is safe and financially secure is undoubtedly a primary concern for you. This includes making sure that your child is protected if something happens to you. Simply gifting assets to your child in your estate plan, as you might do for other beneficiaries, is not a viable option because a minor child cannot inherit directly from your estate. Fortunately, there are a number of estate planning tools and strategies that can help you protect your child’s inheritance, such as:
- A Trust Agreement: One of the most effective ways to protect your minor child’s inheritance is by establishing a trust. A trust allows you to specify how and when your assets will be distributed to your child. There are several types of trusts to consider, each with its unique benefits, including:
- Revocable Living Trust: This type of trust allows you to maintain control over your assets during your lifetime. You can make changes or revoke the trust at any time. Upon your death, the assets in the trust will be managed by a Trustee you have designated and distributed according to the terms you have set.
- Irrevocable Trust: Once you establish this type of trust, you cannot change or revoke it. This type of trust can help with tax avoidance and offers asset protection benefits. If your child has special needs, a specialized type of irrevocable trust should be considered.
- Testamentary Trust: This trust is created through your Last Will and Testament and becomes effective upon your death. The benefit to creating a testamentary trust is that you do not incur any administration costs while you are alive since the trust doesn’t activate until after you pass away.
- Choosing the Right Trustee: While a trust can be an excellent way to protect your minor child’s inheritance, it is crucial that you appoint the right Trustee for the trust to work as intended. The Trustee will be responsible for managing the trust assets and ensuring that they are distributed according to your wishes. As the Grantor (creator) you have the ability to appoint anyone you wish to be the Trustee. Choosing a family member or friend you know, and trust may be your first thought; however, managing a trust can be complex and time-consuming and your family member/friend may not be the right choice. Appointing a professional Trustee, such as a bank, trust company, or attorney, ensures that your Trustee has the experience and knowledge to manage trust assets effectively.
- Drafting a Last Will and Testament: Although you should not make direct gifts to your minor children in a Last Will and Testament, your Will remains a critical component of your estate plan. It allows you to decide who will manage your estate, establish a testamentary trust, and nominate a guardian for your minor child. The guardian will be responsible for your child’s care if you pass away (and the child’s other parent is unavailable) before they reach adulthood.
- Life Insurance: Life insurance is another important tool for protecting your minor child’s inheritance. A life insurance policy can provide a financial safety net for your child in the event of your untimely death. The proceeds from the policy can be used to cover expenses such as education, housing, and general living costs. Talk to your estate planning attorney about naming the trust you have established as the beneficiary, rather than naming the child directly, to ensure that the insurance proceeds are managed according to the terms of the trust.
Do You Need Help Protecting Your Minor Child’s Inheritance in Your Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you need help with estate planning, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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