Martin and Kerli are the parents of 3-year-old Anni. Anni's grandmother, Maali, recently died and bequeathed all her assets to Anni. The estate included a valuable property and money in her grandmother's bank account. Anni's parents want to sell the property in order to take the family on an extended trip abroad. They want to invest the money bequeathed to Anni on her behalf. What are Anni's parents' options for using the child's assets?
Under the Family Law Act, a parent is obliged to preserve and, if possible, increase the value of his or her minor child's assets. As a general rule, a parent may not spend the child's assets, but must keep it for the child and pass it on to the child when he or she reaches the age of majority.
In a situation where a child has inherited money from her grandmother, the parents shall invest it in a credit institution separately from their own property, in accordance with the principle of good governance. This means opening a separate bank account for the child. A notation shall be made upon opening an account for the child that the consent of the court is required for the disposal of the account. Such a provision will ensure that the court has the right and the possibility to verify that the transactions made with the child's assets are in the best interests of the child. If the bequeather has given other instructions to the parents for the management of the child's assets, these must be followed unless compliance with them could be detrimental to the child's interests.
Due to the obligation to preserve and increase the child's assets, it is not generally permissible to use money or other assets belonging to the child for the child's own maintenance. The maintenance of a child is the responsibility of his or her parents. This is the case even if the child has sufficient money or other assets to support herself. However, the law does allow to use the benefit received from the child's assets for the maintenance of the child, including travelling with her.
In order to protect the interests of minor children, the legislator has provided for a number of transactions which cannot take place without the prior consent of a court. For example, the prior consent of a court is required for real estate transactions. Therefore, Anni's parents first need to turn to a court to obtain consent for the sale of Anni's property. The court will only grant such consent if it is in the best interests of the child.
Similarly to real estate, transactions in the securities on behalf of a child require the court's consent each time. In order to avoid going to court for each individual transaction, it is possible to ask the court for a "general consent". According to the case-law, this option should be preferred, in particular for investment transactions. However, in order to grant general consent, the court must be convinced that the parent has sufficient investment knowledge and skills. The court must also be certain that the risks involved in investing the child's assets are not high and are not likely to lead to a reduction in the value of the child's assets.
If the parents decide to make investments on behalf of the child with the parents' own money, the prior consent of the court is not required for the acquisition and sale of certain securities, including stocks and bonds. This applies only if the securities are acquired with the parents' own funds and the proceeds from the sale of the securities remain the property of the child.