When creating a will or living trust, one important question is often overlooked: At what age should a child or other young beneficiary receive an inheritance?
Many people initially assume that a beneficiary should receive the inheritance when he or she becomes a legal adult. In most states, that generally means age 18. But being legally old enough to own property does not necessarily mean someone is ready to manage a substantial inheritance.
For that reason, many estate plans delay distributions until age 21, 25, 30, or even later. Some plans also divide an inheritance into several distributions rather than giving the beneficiary everything at once.
There is no single age that is right for every family. The best approach depends on the amount of the inheritance, the beneficiary, the family’s circumstances, and how much control you want a trustee to have.
What Happens if a Minor Inherits Property?
A minor generally cannot independently manage a significant inheritance.
If property passes directly to a young child, a court-supervised guardianship or custodial arrangement may be required until the child reaches the age specified under applicable state law. Once that arrangement ends, the beneficiary may become entitled to receive the property outright.
That can produce an unintended result.
For example, suppose a parent dies when a child is 12 years old and leaves the child $250,000 outright under a will. The money may be managed for the child while the child is a minor. But when the required distribution age arrives, the beneficiary could suddenly receive the entire remaining inheritance.
Many parents would rather provide more structure.
A trust allows the inheritance to remain under the management of a trustee until the age or ages selected in the estate plan.
Is Age 18 Too Young?
For many families, age 18 is earlier than they would choose for an unrestricted inheritance.
An 18-year-old may legally be an adult but may still be:
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finishing high school;
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attending college or technical school;
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dependent on parents for living expenses;
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inexperienced with investments, taxes, and financial planning; or
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vulnerable to impulsive spending or pressure from other people.
The larger the inheritance, the more significant these concerns can become.
Leaving $5,000 to an 18-year-old presents a very different situation from leaving $500,000.
For a relatively small inheritance, an outright distribution at 18 or 21 may be perfectly reasonable. For a larger inheritance, delaying access may provide important protection.
Why Age 25 Is a Common Choice
Age 25 is a popular distribution age because it provides several additional years for the beneficiary to mature after becoming a legal adult.
By 25, many beneficiaries have completed at least part of their education, entered the workforce, and gained some experience managing money.
A trust can still allow the trustee to use inheritance funds before age 25 for appropriate purposes. For example, depending on the terms of the trust, the trustee might be permitted to pay for:
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college tuition;
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vocational training;
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medical expenses;
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housing;
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transportation;
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insurance;
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ordinary living expenses; and
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other needs of the beneficiary.
The important distinction is that the beneficiary does not necessarily have unrestricted access to the entire inheritance.
At age 25, the beneficiary might then receive the remaining trust property outright.
For many families, this provides a reasonable balance between protection and independence.
Why Some Parents Choose Age 30
Other parents prefer to delay the final distribution until age 30.
By 30, a beneficiary is more likely to have established a career, learned to budget, experienced the consequences of financial decisions, and developed longer-term goals.
A later distribution age can be particularly useful when the potential inheritance is substantial.
For example, a parent leaving a $750,000 inheritance may be much more comfortable having that money managed by a trustee while the beneficiary is in his or her early twenties.
Delaying the inheritance does not necessarily mean withholding support from the beneficiary. The trustee can still be given authority to make distributions for the beneficiary's needs.
The primary purpose of the delay is to prevent the beneficiary from having the unrestricted ability to withdraw and spend the entire inheritance too early.
Using Staggered Distributions
Another common approach is to distribute an inheritance in stages.
Instead of choosing one age, the estate plan might provide:
Age 25: One-third of the trust property.
Age 30: One-half of the remaining trust property.
Age 35: The remaining balance.
Other combinations are possible.
For example:
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25% at age 21, 25% at age 25, and the balance at age 30;
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one-half at age 25 and the balance at age 30; or
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one-third at ages 25, 30, and 35.
Staggered distributions have an important practical advantage. A beneficiary gets an opportunity to manage part of the inheritance before receiving all of it.
If the beneficiary handles the first distribution responsibly, that experience may help prepare him or her for later distributions.
If the first distribution is spent quickly, a substantial portion of the inheritance may still remain protected in trust.
Should the Trustee Have Discretion?
Age-based distributions do not have to be the only source of money available to the beneficiary.
A trust can authorize the trustee to make distributions before the specified ages for designated purposes.
A common approach permits distributions for the beneficiary's health, education, maintenance, and support.
The estate plan may also give the trustee broader discretion.
This flexibility can be important. A beneficiary who is 22 years old may not be entitled to receive the trust outright but may still need money for college, a medical issue, rent, or other legitimate expenses.
The trustee can provide assistance without turning over the entire inheritance.
Should Distributions Be Based on Life Events Instead of Age?
Some people consider tying distributions to particular milestones, such as:
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graduating from college;
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getting married;
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purchasing a first home;
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maintaining employment; or
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reaching a particular income level.
These provisions can work in some situations, but they can also create unexpected problems.
For example, not every beneficiary will attend college. A beneficiary might have a successful career without a degree. Another beneficiary might decide never to marry.
For this reason, age-based distributions combined with trustee discretion are often simpler and more flexible than rigid milestone requirements.
Consider the Beneficiary, Not Just the Number
Choosing a distribution age is not simply a matter of deciding whether 25 is better than 30.
Consider the beneficiary's circumstances.
Questions to think about include:
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How financially responsible is the beneficiary likely to be?
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How large could the inheritance be?
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Would the beneficiary benefit from professional investment management?
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Is the beneficiary likely to attend college or graduate school?
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Are there concerns about creditors, divorce, substance abuse, or outside influences?
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Is there a trusted person who could serve as trustee?
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Do you want the beneficiary eventually to have complete control over the inheritance?
Parents with several children should also consider whether the same distribution schedule makes sense for each child.
Sometimes consistency is desirable. In other situations, different trust provisions may be appropriate.
What if the Beneficiary Is Already Older When You Die?
A well-drafted estate plan should also address beneficiaries who have already reached the specified distribution age.
For example, a trust might provide that a child's inheritance remains in trust until age 30. If the child is already 35 when the parent dies, there may be no reason to create the age-based trust at all.
The estate plan can instead provide that the beneficiary receives the inheritance outright if the beneficiary has already reached the designated age.
There Is No Perfect Distribution Age
Age 18, 21, 25, and 30 can all be appropriate depending on the circumstances.
As a general planning framework:
Age 18 or 21 may be appropriate for smaller inheritances or where early access is important.
Age 25 provides additional maturity while allowing the beneficiary to receive the inheritance relatively early in adulthood.
Age 30 provides more protection and may be appropriate for larger inheritances.
Staggered distributions can provide a middle ground by gradually transferring control to the beneficiary.
The goal is not necessarily to control a beneficiary from beyond the grave. The goal is to structure the inheritance in a way that gives the beneficiary a reasonable opportunity to use it successfully.
A thoughtful distribution plan can help ensure that an inheritance pays for education, housing, health care, and long-term financial security instead of disappearing shortly after the beneficiary becomes legally entitled to receive it.
Review Your Estate Plan as Your Children Get Older
The distribution age you select when your children are five and eight years old may not be the distribution schedule you would choose when they are 20 and 23.
Estate plans should therefore be reviewed periodically.
As beneficiaries mature, family circumstances change, and the value of your estate increases or decreases, you may decide to change the ages at which beneficiaries receive their inheritances.
The important thing is to make the decision intentionally rather than allowing state law or default provisions to make it for you.
This article provides general educational information and is not legal advice. Probate procedures and requirements vary by state. Consult a licensed attorney or qualified tax professional for advice about a specific estate.
