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By Kenneth A. Redding and Raymond H. Caso

You have gone, leaving your estate to your minor children. What happens to the money and assets? Can the children use the funds? Can the Guardian? What about any houses or vehicles? What if the guardian I appoint cannot afford my children?

There are two ways in which your child's inheritance may be administered. You can create a trust and designate a trustee to administer the inheritance or you can simply leave them a bequest under the terms of your Will. In the latter case, the Surrogate's Court will administer the inheritance through a designated guardian or a court appointed guardian. A minor child is defined, under the Surrogate's Court Procedure Act, as a child who has not attained the age of eighteen. Under the Surrogate's Court Procedure Act, for any inheritance above $10,000.00 in which a trust and trustee is not appointed, the court must appoint a guardian of the property and set up a guardian account. Even if you appoint a guardian for the child, without a trust to administer the assets, the appointed or designated guardian must administer the assets in adherence with the rules set up by the Surrogate's Court.

If you allow the Surrogate's Court to administer the inheritance, the court will either appoint the guardian you designated in your Will or appoint a guardian of its choice for the property and create a guardian account. In creating the guardian account, the court places many restrictions on how the money may be invested. These restrictions are quite conservative in nature. The court controls when funds may be withdrawn and how they may be used. The appointed guardian must submit a written request to the court for any withdrawals from the account, and withdrawals are only permitted for the education, health, maintenance and support of the child. The balance of the account is automatically distributed to the child when the child reaches the age of eighteen.

If you create a trust and appoint a trustee to administer the inheritance you decide on how the money is invested. Any restrictions placed on the investments are chosen by you and your designated trustee. You decide on how, when, and for what reason funds may be withdrawn from the account. You do not have to use the same standards in which the court must adhere to under the law. Furthermore, you decide when the funds shall be paid over to your child. You may decide to have the trust maintained well past the time the child reaches the age of eighteen or allow the trust to be paid out prior to the child reaching the age of eighteen.

As for real and personal property left to the child, such as the house or vehicle, the property may be placed in a trust until the child reaches the age of majority. A designated guardian or court appointed guardian may safe guard the property for the benefit of the child until the child is old enough to take possession of the property. The guardian may not sell, transfer or otherwise dispose of the property without the consent of the Surrogate's Court. While it may be prudent and even necessary to sell personal property for the benefit of the child, for example the house that was inherited is too small, the guardian must petition the court for an order for such purpose. The court will then appoint a guardian ad litem to protect the interest of the child and to assure that the action being taken by the guardian is necessary and proper. The guardian ad litem’s fee is paid for out of the child's inheritance. On the other hand, a trustee may then sell, transfer or improve the property according to the directions you dictated in the trust. ‘

It is clear to see that there are several advantages in creating a trust and appointing a trustee to administer the inheritance. However, there are disadvantages too. The property placed in your trust will not have the protection that the Surrogate's Court provides in its rules and guidelines. While the Surrogate's Court only allows the assets to be invested and used conservatively, these conservative rules and guidelines assure that the assets will be protected for the child. Furthermore, the trustee is allowed an annual commission for administering the trust. This commission is based on the value of the trust. Therefore, it may not be prudent to set up a trust to administer your child's inheritance if the trust account being set up is minimal. To determine whether you set up a trust account or distribute the assets through the Surrogate's Court you should consult with an estate attorney. A qualified estate attorney will review your goals for inheritance and assist you in determining which course of action is best suited for your situation.

The last issue is what happens if the appointed Guardian cannot afford to raise your children in the manner in which you would like. Perhaps having your children added to their own creates a crowd. What if they need a larger home or car? What if they cannot afford to take your children on vacation? Without a trust, it is unlikely that the court will allow the childrens’ funds to be invaded for these purposes. There are ways to provide your selected guardian with funds and this is another area which we, as estate attorneys, can discuss your options.

Whether or not you want a trust, the most important thing is to have a Will. If you have minor children, it is your responsibility to choose a guardian. Don't leave it to the Court to decide.

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