Children are involved in the legal system every day. However, since they are not eighteen, if a child inherits money or is awarded a sum of money from a personal injury case, their assets will be managed by another.
A minor’s relative passes away and the child inherits money as a beneficiary under a will. Unless a trustee is named by the terms of the will, a probate court judge will appoint someone to manage the child’s money. If the funds are greater than $5000, the judge will appoint a “conservator” who will manage the inherited money. The family of the child (or the child his/herself if they are at least 14 years old), can nominate the person they would like to serve as the conservator, but the judge will ultimately decide on the best person to serve. The conservator will be responsible for filing annual accounts with the probate court, making investment decisions, and paying any court approved expenses on behalf of the child.
The conservatorship will remain with the probate court until the child reaches the age of eighteen. If there is a need to use any of the inherited money during the child’s minority, the conservator will be required to go before the judge and get permission to use the funds.
A minor child suffers an injury and is awarded money from winning or settling a lawsuit. Once the settlement is approved by a “next friend” on behalf of the child, (since a minor cannot agree to the settlement), a conservator would be appointed to manage the money until he or she reaches the age of eighteen. However, if due to the injury, the child will be unable to manage the assets when they reach adulthood, the conservatorship would need to be continued indefinitely, unless a trust is established.
Alternate Estate Planning
In Case One, if a testamentary trust had accompanied the will, a trustee would have been named to manage the minor’s money. A testamentary trust is created by a will and becomes effective when the person who created the will, dies. A testamentary trust is an effective estate planning tool which eliminates the need for a conservatorship and can be a mechanism for management of the funds of a young person who may be too inexperienced to effectively manage their own property.
In Case Two, once a child reaches the age of majority, he or she will receive all of the money in the conservatorship and the court proceedings will terminate. However, if it is determined that the child will be incapable of managing money during his/her lifetime, a special needs trust can be established for the benefit of the challenged individual. Effective estate planning for a person with a disability (a minor or an adult), by the use of a special needs trust allows for the management of finances while still retaining all of the needs-based government assistance benefits.
There are obviously exceptions to these situations, but as a guideline, trusts can be very useful in helping the family of a minor plan for the future outside the umbrella of the court system.