This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. We recommend you discuss your specific situation with a qualified tax or legal advisor.
If you have ever tried to open a bank account or brokerage account for a child, you know children can’t have accounts. You have to have someone else on their accounts in most cases or open a UGMA or UTMA account which is someone else making decisions in that account. Parents or grandparents can walk into a real problem if you choose to make minor children your beneficiaries. In the event of a death or gift, those minors can’t have those accounts like someone over 18 could have. Those children named in a will or as a beneficiary will have to open a CONSERVATORSHIP ACOUNT.
That poses some administrative headaches. A “conservatorship” is a legal action in which the court appoints a “conservator” to manage the financial affairs or daily life of a “protected person” who is a minor or is someone incapable of managing the person’s affairs. As you may have guessed, it is now subject to the laws that govern those accounts in the state the minor resides in. There is formal legislation that outlines how those accounts are managed, and how those accounts are used for the benefit of those minor children. Conservators must file an initial care plan, and annual reports, and a final report when the minor becomes of age. There are fees associated with court orders in conservatorships and perhaps other fees like hiring a conservator and an attorney to manage the legal requirements and file with the courts. Money or earnings from those conservator accounts need the courts to approve and monitor distributions from those accounts for the wellbeing of the protected minor. This can add costs to the management and is cumbersome in using those accounts for the minor children.
If you- like me- feel that process which is needed to protect minors, may not be necessary or needed in your situation, there are steps you can take.
We all need to consult with our attorney or legal advisors to find which method is best for your situation. One method would be to establish a trust account and move all your assets into that trust account, which has trustees and distribution guidelines. That certainly works, but you may not need or want to establish a trust for all your assets especially if you are new parents and the vast majority of your estate may be from life insurance for your minor children. I chose to add a clause in my will that in the event of my death a “Testamentary Trust” would be established. This clause creates a trust for the benefit of my minor children which establishes trustees and distribution rules. No changes to your current assets is required with the exception of making the beneficiary changes to your retirement accounts and your life insurance and any account that names beneficiaries. Needless to say, every situation is different and every family needs are different.
My goal is to have these conversations with people so that we all can be better informed in ensuring we all are aware of the consequences to have the information to make the best decisions.
RICK