I Want to Give Money to Someone Without a Bank Account--Trust or Conservatorship?
Today, a very kind person contacted me about passing money along to a close friend’s surviving children. He asked me what the best way to pass along the money would be—a trust or a conservatorship. As with most things, the answer is that it depends, but here is a short breakdown of the benefits and drawbacks of each option.
Trust
A trust is an arrangement by which a settlor/trustor gives a trustee legal title to something (money, a house, brokerage accounts) for the benefit of beneficiaries. In this case, the settlor/trustor has a lot of control over the initial document that creates the trust but the trustee has control over administrating the trust.
Trusts can be reviewed by courts if a beneficiary requests a judge’s oversight but they aren’t automatically reviewed that way. Trustees are fiduciaries, which means they have responsibilities to administer the trust for the benefit of the beneficiaries without regard to the trustee’s interests. Trustees often are able to reimburse themselves for their work administering the trust.
Conservatorship
A conservatorship is always filed with the court where a minor child or incapacitated person lives. This case requires a judicial officer to review the money that is coming to the child or incapacitated person, get information about the proposed conservator’s ability to manage money, and have a hearing about the appointment of the conservator.
Usually, the Court will order that the money going to the minor or incapacitated person be held in an interest-bearing account and the conservator file an annual report about the amount of money in the account. The benefit of this method for passing along money is that there is built-in oversight from a judge.
To withdraw money from the conservatorship account, the conservator generally has to file a request with the Court for the withdrawal. Conservatorships also generally terminate when a minor child turns 21 or when an incapacitated person recovers capacity.
So which do I pick?
Depends on your goals. Here is a side by side comparison to help guide you.
| Trust | Conservatorship | |
|---|---|---|
| Flexibility | Can be more flexible | Generally less flexible |
| Reimbursement for Responsible Party | Trustee can receive reimbursement | Conservator rarely receives reimbursement |
| Judicial Oversight | Does not automatically have judicial oversight | Automatically has judicial oversight |
| Termination | Can terminate at any stage, depending on the draft of the trust document | Usually terminates at the minor turning 21 |
Trusts and Conservatorships are both excellent ways to pass along money to those too young or incapacitated to have bank accounts. The best path really depends on the intent and circumstances surrounding the gift. If you have specific questions about your situation, please reach out to us to discuss.