Rights of a Legal Guardian if the Child Is a Trust Beneficiary

By Beverly Bird

Estate planning becomes more complicated when young children are involved. Minors can't legally take control of their own inheritances, so an adult must manage their money and property for them until they reach the age of majority. Someone must care for and raise the child as well. You can name the same individual to assume both roles, but you'll give that person a great deal of power.

Role of the Guardian

You can name a guardian for your child in your last will and testament, although this doesn't guarantee that the court will appoint the individual you've selected. For example, if you're divorced, you usually can't name someone other than your ex as your child's guardian because custody reverts to the surviving parent in most states. Neither will the court appoint your preferred guardian if the judge finds that she's unfit for some reason. Otherwise, the individual you've chosen will most likely raise your child. She has custodial rights, but this doesn't necessarily mean that she has access to your child's inheritance.

Role of the Trustee

If you want to establish a trust to hold your child's inheritance after your death, you have a couple of options. You can create one during your lifetime -- a living trust -- or you can make provisions for a testamentary trust in your will. If you make provisions for a testamentary trust, your child's inheritance will move from your probate estate into the trust to be managed for her benefit by a trustee you've named. Unlike with a guardian, you don't need court approval for your trustee. A very distinct line exists between management of your child's trust fund and her custodial care. Her guardian makes decisions regarding her upbringing, whereas the trustee makes decisions regarding her property and finances.

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Naming the Same Person

There's no law that says you can't appoint the same person as your child's guardian and as trustee, but there may be some problems with this plan. An individual who is ideally suited to nurture your child after your death may not also have the necessary financial acumen to successfully handle the inheritance you've left. Someone who is a business genius and who might excel as your trustee might not like kids. If you name the same person to both positions, you might give your child's guardian a great deal of power. As trustee, she can draw from your child's inheritance at will if you set up a discretionary trust, giving her authority to spend money how and when she sees fit. Technically, the money should be used for your child's benefit and you might even state this in your trust documents, but there's nothing stopping her from buying a nice new home in the suburbs and saying that this is to your child's benefit because your child can live there.

Appointing Two Individuals

If you name two separate individuals as trustee and guardian, the trustee has complete and sole control over your child's finances. He can pay for your child's extraordinary needs, such as medical care or education, from the trust. He can pay your guardian a monthly stipend -- something like child support -- to help defray the costs of raising her. If something unexpected comes up and your child needs a sum of money immediately, her guardian can make the request of the trustee, but ultimately, the expenditure is up to him -- either because you've given him the discretion to decide such things or because your trust documents permit or prohibit such transactions. Ultimately, the choice is yours.

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