Who will manage your child’s inheritance?
Who will manage your child’s inheritance if you die?
It’s an important question for parents of young children.
If your child inherits from your estate while they’re still a minor, they won’t simply be handed the money or assets. Someone will need to manage that inheritance on their behalf.
That person will have an important job. They may need to balance providing for your child’s needs during their childhood with preserving assets for their future.
Your child’s inheritance needs to be managed
The way your child’s inheritance is managed depends on the terms of your Will.
In Queensland, a child generally cannot receive an absolute entitlement to an inheritance until they reach 18. If your child is under 18 when they inherit, their inheritance will generally need to be held and managed by an adult on their behalf.
That adult is a trustee.
A trustee has legal responsibilities when managing trust property. They need to act properly, follow the terms of the trust, and make decisions in the interests of the person or people who are entitled to benefit from it.
That is a big responsibility.
Who should you choose?
You can nominate the person or people you want to manage your child’s inheritance in your Will. This might be a family member, close friend, or someone else you know and trust. Think carefully about who you would trust with this responsibility.
You want someone who:
you trust to put your child’s interests first
is responsible with money
can make sensible financial decisions
understands that your child’s needs will change as they grow
is likely to be available to take on the role
can work cooperatively with your child’s guardian and other people involved in your child’s care
will seek professional advice when they need it.
It can also be worth nominating backup trustees in case your first choice is unable or unwilling to act when the time comes.
What can the trustee use the inheritance for?
This depends on the terms of your Will and the type of trust established.
For example, your Will might allow trust funds to be used for things such as your child’s:
education
medical and dental expenses
clothing and everyday needs
extracurricular activities
housing and living expenses
other expenses associated with their care and upbringing.
Your estate plan can be structured to give the trustee appropriate powers to use the inheritance for your child while they are growing up.
This is where the detail of your Will matters.
What happens when your child turns 18?
A standard Will may provide for your child’s inheritance to pass to them when they reach a specified age.
For some families, that may be appropriate. For others, handing a substantial inheritance to an 18-year-old may not align with their wishes.
You might want your child to have access to their inheritance earlier for genuine needs, while retaining some assets for their future. You might also have concerns about your child’s financial maturity, their relationship, creditors, or other circumstances that could affect how an inheritance is used.
This is where a testamentary discretionary trust, or TDT, can provide another option.
A testamentary discretionary trust
A TDT is established through your Will and comes into effect after your death.
Instead of your child receiving an outright inheritance, assets can be held within the trust and managed by a trustee.
The trustee has discretion to distribute income and capital to beneficiaries in accordance with the terms of the trust.
This can provide greater flexibility around when and how your child receives the benefit of your estate.
For example, the trust may allow distributions to be made to help with your child’s education, housing, medical needs, or other expenses, while assets remain protected within the trust structure for their future.
A TDT can also be useful where a beneficiary may need additional financial protection or support.
The right structure depends on your family, your assets, your goals, and the circumstances of your children. A TDT is not necessary or appropriate for every family.
Who will look after your child, and who will manage their money?
These are two different roles.
Your testamentary guardian is the person nominated in your Will to care for your child and make decisions about their upbringing if you die while they are under 18.
Your trustee manages trust property, including your child’s inheritance.
You might choose the same person for both roles, or you might deliberately choose different people.
For example, you might have someone who would be an excellent parent for your children but who you would not choose to manage a significant inheritance. Your estate plan can be structured around those different responsibilities.
Think beyond the person you would choose today
Your children will grow and change.
The person you choose to manage their inheritance needs to be able to make decisions with their future in mind, not simply respond to what your child wants at a particular point in time.
This is one reason we spend time talking with parents about their children, their family relationships, their assets, and their wishes for their children’s future.
There is no one-size-fits-all answer.
Your Will can give the people you trust the right framework to care for your children and manage their inheritance after you’re gone.
Choosing who will care for your children and who will manage their inheritance are two of the important decisions to make when putting your estate plan in place.
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