The start of the school year focuses our attention on children. 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 imagining that the parents are no longer alive. After all, 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 established to manage the money. A conservator will be appointed by the court and that person will be in charge of 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. 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 children’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. Both a trust and a conservatorship hold the money for the wards’ benefit, so the money is preserved for your children. 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 and the court oversight and annual reporting. You can nominate a family member or trusted friend to manage your assets instead of allowing the court to appoint a conservator.
Perhaps most importantly, the trust terminates when you decide. While a conservatorship terminates at age 18, your testamentary trust can terminate at any age you choose. Many parents want their children to have full access to the assets at age 22, 25 or later.
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, www.ARPCLaw.com.