As you get ready to prepare a will and perhaps a trust, it’s important to know what type of assets can children inherit? The simple answer is that if the children or grandchildren you want to leave money to are minors, there is little they can inherit outright at that age. However, when they reach the age of majority, they are free to inherit everything you leave to them. The questions then become, how early do you want them to receive the money once they reach majority and how much control do you want the custodian to have over their financial decisions.
What Type of Assets Can Children Inherit?
Children can inherit whatever assets you would like to leave them after they reach the age of majority. In general, if the child is still a minor, you can determine three ways they receive your assets.
The simplest (and cheapest) option is to just set up a will for your child. You assign a custodian to raise your children. However, the will must go through probate, and the court, not the custodian, will have control of the money until the children reach majority, which is 18 or 21 depending on the state you live in. Then, the children are free to use the money as they see fit.
A Revocable Living Trust
When you set this up, all of your assets go into the revocable living trust, and you can use the money and assets as you like when you’re alive. When you die, the revocable living trust seamlessly changes hands to the designated trustee. You can give very clear terms for your trustee such as stipulating a child who is an alcoholic, drug addict or gambler will not receive the money. Likewise, you could say that the child can have $15K a year from the trust. Or you can say that the money must be used for college.
Then, the trustee just executes your terms.
An Irrevocable Trust
The last option is to set up an irrevocable trust. If you chose this option, make sure you’re certain because an irrevocable trust is permanent. If you put $500K in an irrevocable trust for your grandson, you can’t change your mind later because you no longer want him to have the money. What is done is done. However, like a revocable living trust, you can have a say in when the minor child will receive the money and how.
There are some benefits to this type of trust because it can lower your estate tax burden, and it can lower your assets if you need, for instance, nursing home care.
If you’re wondering what type of assets can children inherit, the simple answer is not much while they’re minors. However, you can set up one of the three options above for your minor children. Once they reach majority (for wills) or the age that you designate (for trusts), they can start receiving their inheritance. While there are benefits to each of the three types, there are also drawbacks, so consider carefully which one to set up for both yourself and your minor children or grandchildren.