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Creating a Trust For Your Child

Posted October 31, 2012 in Advice Column, Johnston

If you and your spouse both pass away, what will happen to the money you leave to your children?

It is sometimes difficult for parents to plan for their children’s financial futures, especially since it is rare for children to lose both parents. But all it takes is one accident involving you and your spouse for these issues to impact your family.

In Iowa, children younger than 18 are considered legally incompetent. If your children are minors when they inherit money, the court will create a conservatorship. This is a legal entity which will manage the money. A conservator will be appointed — usually someone connected to your family, but not necessarily — and that person will make decisions about investing the money.

A conservator may use the funds for the benefit of your children, but almost all expenditures require prior court approval. In addition, the conservator must make annual reports to the court of the income and expenses of the conservatorship. Often, the conservator must post a bond. The bond, court costs, and attorney’s fees are all expenses that will be paid from the money you left to your children.

Regardless of your child’s financial maturity, a conservatorship ends when the ward turns 18. No longer subject to oversight by the conservator or the court, the teenager can spend the money any way he or she chooses.

A better alternative for most parents is to create a trust in their last will and testament. In your will, you can create a trust — a legal entity that will manage your children’s inheritance for their benefit. The trust holds the money to be used for your child’s health, education and general welfare. A trustee and a conservator have similar roles — they are duty-bound to manage the money wisely and preserve it for the benefit of your children. However, the trust in your will can waive the bonding requirement, the court oversight, and the annual reporting.

Perhaps most importantly, the trust terminates when you decide. While the conservatorship terminates at age 18, your testamentary trust can terminate at any age you choose. Many parents want their children to only have full access to the assets later in life. You can also stagger the payout of the funds over several years.

A simple will that contains a child trust is an easy and inexpensive way to prevent problems in the future.

Information provided by Ross Barnett, attorney for Abendroth and Russell Law Firm, 2560 73rd St., Urbandale, 278-0623,

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