Parents with minor children often start estate planning in order to ensure that their child is physically cared for. This typically involves naming a guardian in a will. See "Estate Planning for Children: Selecting a Guardian in Hawaii." However, they often forget to consider who will manage their minor child's property if both parents die.
A Guardian or Conservator Can Manage a Minor Child's Property
Parents that nominate a guardian in a will often choose the same person to manage the minor child's property in addition to physically caring for the child. However, this is not a rule and someone other than the guardian can manage the child's property. This other person will act as conservator and will be responsible for all aspects of managing the minor child's property including investing or even selling assets. Sometimes this separation of powers is preferable as a guardian might be very caring, but not adept at properly managing money.
A Minor Child Cannot Manage His or Her Own Property
At this point you might be wondering why a minor child even needs someone to manage his or her property. Well, a minor generally lacks the ability to enter into contracts. This is a huge problem when it comes to managing property because many aspects of property management involves entering into contracts. Think about the many times you've had to read disclosure statements and sign your name.
Another reason is that a child is generally not mature enough to make decisions related to managing property. Think about how wise you were at five years old or even in your teens. This is why estate plans often contain staggered distributions of property at varying ages (i.e. 25, 30, 35) or a single distribution at a later age (i.e. 25).
A Conservatorship Can Be Expensive and Inconvenient
If parents fail to create an estate plan addressing the issue of property management related to the child's inheritance, then the court will appoint a conservator to do the job. This is not advisable as this can be costly and inconvenient. A conservator operates under court supervision, which means that the conservator must petition the court for permission to accomplish certain transactions, must prepare an accounting annually, and might even be required to post bond. Additionally, the conservatorship ends when the child reaches age 18, which means that the property is turned over to the child at that point. At age 18, the child could lack the skills to manage the property and end up squandering everything away.
The Bottom Line: A Trust is Better Than a Conservatorship When it Comes To Managing a Minor Child's Property Upon the Death of Both Parents
The better option is to create a trust. The trustee will be able to manage the property without the limitations imposed by a conservatorship. Additionally, parents can delay outright distribution of property to an age beyond 18. Furthermore, parents can specify under what circumstances a child can receive payments or otherwise access property within the trust.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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