How to Manage Your Child’s Financial Assets

Most married couples choose to leave their estates to each other upon their deaths and usually assume that the surviving spouse with take care of minor children’s needs using the estate’s value. However, if one so desires, one may grant an inheritance directly to a child, particularly if one is divorced or separated. If you are considering granting such an inheritance to your minor children, you should know that they will have little, if any, control over their assets.

Keep in mind that an adult must help a child manage his or her assets, especially if those assets are in excess of a few thousand dollars. Generally, the other parent will play this role, but if that is not possible, the court system will become involved. The court will take control of the money and will pay a stranger to manage the money for the child. This court-appointed manager will charge fees to manage the child’s assets, and the cost of the fees will come out of the estate’s coffers. Even if the court appoints a relative to manage the child’s estate, legal and accounting costs can occur to prepare any kind of reports or documents that the court might require. Those costs, too, will be deducted from the child’s inheritance.

It makes sense that, in all likelihood, you would want to designate the same person both to care for your child and to manage the child’s assets. As stated earlier, that custodian and money manager is usually the surviving parent. However, it can sometimes happen that a person is a great money manager but is terrible with children——or vice versa. If this is the case, then you might want to consider naming two different people to help your child on the road to adulthood. Likewise, if you’re divorced and don’t want your ex-spouse managing your children’s assets, you can name another person or even a financial advisor to be their manager.

It is important to take great care when choosing your child’s custodian. Select someone who is of legal age, who is financially astute, who is responsible, and who is willing and able to handle the responsibility. Wise parents know to designate a primary custodian as well as a secondary custodian who can step in if the primary custodian becomes unwilling or unable to do the job.

If one person manages the child’s finances and another person manages the child’s upbringing, conflict will possibly arise. You can minimize the potential for conflict by doing the following:

· Carefully selecting two people who genuinely desire to work cooperatively and collaboratively on behalf of your child, and
· Clearly and frankly engaging in discussions about your vision for the ways you want your child raised and the methods by which your child’s assets will be used for support.

Taking into consideration your estate’s size and complexity, you might want to create a trust for your child’s assets. This trust could hold all or a percentage of your child’s assets. If you decide to go this route, you’ll want to consider various provisions to include in the trust. Those provisions could include such guidelines as methods for resolving conflicts among caregiver, trustee, and child. Another aspect to think about would be timelines that dictate when the money should and/or should not be paid from the trust.