Business Succession, Estate Planning, Guardianship, Legacy, Trusts, Wealth

The Secret to Preventing Trust Fund Babies & Teenage Millionaires

It’s a cold hard truth, but we are all going to pass away one day.

Bummer, I know.

But, knock on wood, you’ll only pass away when your kids are not minors.

But what happens if you do pass away, and you have kids who are not of majority age?

Will you create yet another underaged Tik Tok millionaire who can throw piles of cash at the camera with your money?

That might be a little tongue-in-cheek, but it’s a real question I hear from concerned parents all the time.

Texas follows a uniform statutory code called the “Uniform Gifts to Minors Act,” which essentially states that if a minor were to receive a gift via a will or a trust, the minor is not to receive that gift until the minor is of majority age.

In other words, someone is going to have to manage the money to which the minor is entitled until the minor turns 18 in Texas.

But this raises a bunch of questions: How does one manage the money until the kid is 18? Who manages that money? Are there limitations on the receipt of that money?

More specifically, the court is going to decide who manages the money for the minor unless you have specified in a legally binding document beforehand.

Now that might be a problem because I can think of several people in my life I would not be comfortable managing money on behalf of my children.

Additionally, the money is to be managed by the guardian in a fiduciary capacity. This means the guardian must invest the money until the minor turns 18 in a responsible manner in the best interest of the child.

But there is no hard-set rule on how that money is to be managed.

So that means that your financially irresponsible sister could be put in charge of the money, and the sister could “invest” that money in the latest and greatest cryptocurrency scam, or a failed NFT project, or even art work from her most recent “modern art” collection she drew up last night.

That’s not good.

And, last, but not least, the law does not state any limitation on how the child is to receive the money (most of the time).

That means once the child turns 18, BAM! That child’s bank account all of a sudden has a lot of money in it.

A lot of unsupervised money, more specifically.

And I think that we all know what happens when 18 year old teenagers will do with unsupervised money.

That’s right. Showing off on Tik Tok.

So, all of this sounds pretty doom and gloom, right?

But, in reality, there is an easy way around this.

Just sign two documents: a declaration of guardianship, and a will or a trust.

The declaration of guardianship will tell the judge to appoint a specific person to be the guardian over your kids and the money the kids would inherit.

The will or the trust, if drafted with a competent attorney, will state clearly what is to happen to the funds if they kids are to inherit the money before they are of the appropriate age.

X percentage at age 21. Y percentage at age 25. Can only spend the money on education or health care. Etc.

And that is how you minimize the number of kids there are on social media flinging their parents’ money around like they own the world at such a young age.