If any of beneficiaries of your living trust (including alternate and residuary beneficiaries) might inherit trust property before they are ready to manage it without an adult's help, you should arrange for someone else to manage it for them for a while. There are several ways to go about it:
Get details about UTMA Custodianships and Subtrusts.
WARNING: Children with special needs. These property management options are not designed to provide long-term property management for a person with serious disabilities nor for a person who receives government disability benefits. For information on providing for a person with special needs, see Special Needs Trusts: Protect Your Child's Financial Future, by Kevin Urbatsch and Michele Fuller Urbatsch.
It's up to you whether or not to make arrangements in the trust document to have someone manage trust property if it is inherited by young beneficiaries.
The consequences of forgoing management for trust property inherited by a young beneficiary depend on whether the beneficiary is over or under age 18 at your death.
If your minor beneficiaries (children under 18) won't inherit anything of great value -- if you're leaving them objects that have more sentimental than monetary value -- you don't need to arrange for an adult to manage the property.
But if a beneficiary inherits valuable trust property while still a minor, and you have not arranged for the property to be managed by an adult, a court-appointed guardian may have to manage the property.
Contrary to what you might expect, a child's parent does not automatically have legal authority to manage any property the child inherits. So even if one or both of the beneficiary's parents are alive, they may have to ask the court to grant them that authority and will be subject to the court's supervision. If neither parent is alive, there may be no obvious person for the court to appoint as property guardian. In that case, it may be even more important for you to name someone in your living trust.
There is one other option: In most states, the successor trustee can appoint a custodian for property inherited by a minor. If the value of property exceeds a certain amount -- $10,000 in most states -- a court must approve the appointment. And the custodianship must end at 18 in most states, earlier than many parents would choose. So it's still better to name a custodian yourself.
If someone who is 18 or older inherits trust property, you do not need, legally, to have anyone manage the property on the beneficiary's behalf. And if you don't make any arrangements, the beneficiary will get the property with no strings attached. But you can arrange for property management to last until a beneficiary turns any age up to 35.
There is no legal requirement that management for a trust beneficiary's property must end at 35, but we think 35 is a reasonable cutoff. If you don't want to give a beneficiary free rein over trust property by the time he or she reaches 35, you probably need to see a lawyer and tailor a plan to the beneficiary's needs.
With Nolo's Living Trust, you can create either subtrusts or custodianships under the Uniform Transfer to Minors Act. Both are safe, efficient ways of managing trust property that a young person inherits. Under either system, the person in charge of the young beneficiary's property has the same responsibility to use the property for the beneficiary's support, education and health.
The most significant difference is that a child's subtrust can last longer than a custodianship, which must end at age 18 to 21 in most states (up to 25 in a few). For that reason, a child's subtrust is a good choice when a child could inherit a large amount of property.
Because an UTMA custodianship is much easier to administer, it is usually preferable if the beneficiary will inherit no more than about $50,000 worth of trust property ($100,000 or more if the child is quite young). That amount is likely to be used up for living and education expenses by the time the beneficiary is 21, so there's no need to create a subtrust that can continue beyond that age.