Unintended consequences often occur without proper estate planning. This is common when minor children receive an inheritance. Since minors cannot possess assets directly, the inheritance must be held on behalf of the minor until he or she attains the age of majority. A parent, however, does not automatically have the right to hold the inheritance on behalf of a child. Instead, the parent must formally qualify as guardian or file an application with the Court to establish a trust. Otherwise, the inheritance will be held by the Surrogate’s Court until the child turns age 18 years. These options are discussed in more detail below.
1. Funds May Be Held in the Surrogate’s Intermingled Trust Fund
In New Jersey, if a minor inherits money, the funds are often held in the Surrogate’s Intermingled Trust Fund until the child turns 18. This is governed by N.J.S.A. 3B:15-16. During this time, access to the funds is limited, and any withdrawal requires a formal application to the court. The purpose of this restriction is to safeguard the child’s inheritance until they reach the legal age of majority. However, the process of petitioning the court to release funds can be time-consuming and requires demonstrating that the withdrawal is in the minor’s best interests.
2. Parents Can Qualify as Guardians Through the Surrogate’s Court
Instead of having the funds held by the Surrogate’s Office, a parent may qualify as a guardian of the minor’s estate. (This is counterintuitive since the parent is the natural guardian of the minor). Nevertheless, this process involves filing an application with the Surrogate’s Court and posting a bond. Once appointed, the parent/guardian may deposit the funds in a financial institution of his or choosing, manage the funds and use money for the minor’s benefit without requiring court approval for each expense. This option provides greater flexibility for covering costs such as education, healthcare, or other needs, while still ensuring oversight and accountability through the bond requirement. The inheritance, however, must still be distributed to the child upon attaining age 18 even if the parent does not believe the child is mature enough to receive the funds.
3. Establishing a Trust for Long-Term Management
In some cases, it may be beneficial to create a trust for the minor’s inheritance. A parent, guardian, or interested party can apply to the court to establish a trust under N.J.S.A. 3B:12-54.1. Unlike funds held in the Surrogate’s account, (or the parent as guardian) a trust can extend beyond the minor’s 18th birthday, allowing for more tailored management of the inheritance. For example, the trust could distribute funds at specific milestones, such as graduating from college or reaching age 25. An application to the Superior Court of New Jersey is required to establish and fund the trust.
The above options could all be avoided through proper estate planning – i.e. establishing a testamentary trust for the benefit of a minor in one’s Will; and designating the trust as beneficiary of non-probate assets (such as life insurance policies and retirement accounts). The Elder Law and Estate attorneys at Mandelbaum Barrett PC can help parents or guardians navigate these issues and ensure the minor’s inheritance is protected and used appropriately for his or her benefit.