The question regarding the options for someone under the age of 18 to receive cash assets from an estate, a trust, a settlement, or through a beneficiary designation comes up a lot. So long as the minor is not emancipated or married, a court proceeding will likely be required. When a minor receives income from artistic endeavors is a separate issue that is not covered in this discussion. Also, there are code sections governing the receipt of settlement proceeds from litigation involving a minor that are not addressed below.
Let’s start with the good news – when a court proceeding is not required for a minor to receive money.
* Distribution from a Trust. If the minor is a beneficiary of a trust, the trust terms will dictate when and how the minor will receive the funds. A well drafted trust will contain provisions providing for the trustee to manage the funds for the minor until 18 or later. When the trust does not contain provisions restricting distribution until the beneficiary is over the age of 18, which is rare, a court proceeding may be triggered. This could be one of the proceedings discussed below or a trust petition to modify the terms of the trust. When a guardianship may still be necessary even if the trust does have terms that control the distribution, is if someone needs to represent the minor’s interest in the trust (i.e., the trustee is not properly administering the trust). In that situation, a guardian of the estate must be appointed to represent the minor as a beneficiary.
* Total Amount Less Than $5,000. If the total amount of assets (including assets other than cash) that the minor is to receive is less than $5,000, the probate code allows for the assets to be distributed to the minor’s parent entitled to custody. The parent is obligated to distribute the funds to the minor once they turn 18 and to provide an accounting of the funds.
* CUTMA. The California Uniform Transfers to Minors Act (Probate Code Section 3900 et seq.) is an alternative to a guardianship proceeding. The instrument providing for the gift, such as a trust, will, or beneficiary designation, can specify that the gift is through a CUTMA. Or a fiduciary (i.e, executor or trustee) can transfer up to $10,000 to a CUTMA account without a court order. The fiduciary chooses who the custodian is of that CUTMA account.
The California Financial Code does discuss the ability of a minor to open a bank account and deposit funds into an account. There are limitations allowed to those accounts if the minor is 13 years old or younger.
When there is a poorly drafted trust, no will with direction regarding a distribution to a minor, the funds are more than $10,000, or the holder of the funds is requiring Letters of Guardianship, then a court proceeding is required. But wait, a full guardianship proceeding MAY still not be required.
* Probate Code Section 3413 Petition. A common proceeding that I use when a minor is receiving more than $10,000 in cash is to obtain a court order ordering the funds to be deposited in a court-ordered blocked account. The probate code provides at Section 3413 that if the funds are less than $20,000, then they can be deposited into an account that is blocked and withdrawals are only allowed with a court order. I have had success with the court allowing this proceeding when the funds are more than $20,000, but if the funds are closer to $100,000, the court is going to be more inclined to order that a guardianship of the estate be established to manage the funds.
The benefit of having the funds in a court-ordered blocked account is that required court accountings are not required, a fiduciary bond is not required, and once the minor turns 18, they can take their birth certificate to the bank and receive the funds. The downside is that the funds are not accessible if needed unless a petition is filed with the court requesting a withdrawal. There have been circumstances where I have obtained a court order allowing periodic payments be made from the account for things such as tutoring expenses, car payments, etc.
Any other circumstance where a minor is receiving cash or other types of assets (i.e., real property) will require a guardianship of the estate to be appointed. And, sometimes a guardianship of the estate may be preferred if more protection is needed for the funds than what is allowed with the alternatives. A guardianship of the estate can be expensive and has a lot of limitations on how the assets can be managed. Also, the minor may be entitled to receive the assets at the age of 18. So the key to avoid a guardianship of the estate is to make sure that a minor is not named as a direct beneficiary on life insurance and retirement accounts. The best and least expensive way to pass funds to a beneficiary is through a trust which allows you to control who manages the funds and how and when the child receives the funds.