Carissa Giebel column: Planning Your Estate for Minor Children
11:00 PM, Feb. 27, 2012 |
Families with children who are minors need to consider how to provide for their children if both parents would pass away.
Parents need to decide how to financially provide for their children, while not giving the children access to too many assets before they are old enough to act responsibly. Access to the assets too early can be more harmful than helpful.
Other considerations are who will care for the children and who will manage the assets left to them.
A married couple also needs to consider their wishes if only one spouse passes away. Do they want some assets to go directly to the children? Or, do they want to leave everything to the surviving spouse to care for the children, understanding the possibility that the survivor could remarry and have additional children?
Parents with children from a previous marriage may want to provide for their children, but also for their surviving spouse. They need to decide which assets they want to go to their children and which ones should go to their surviving spouse. Perhaps a certain dollar amount or percentage is desired for the children and the remainder to the spouse.
A last will is a legal document that is needed to nominate a guardian for minor children in case both parents would die. Sometimes parents also want the guardian to manage the assets for the children, but often times, parents choose someone else to manage the assets.
Not only is it important to consider who will manage the assets (the trustee), but also how the assets will be managed. How and when can the trustee make distributions to the children?
Sometimes parents want distributions made when the children reach certain ages or certain milestones in their lives. For example, parents might want the trustee to make distributions for education, health, the purchase of a house, starting a business or a wedding.
The parents may want to give the trustee full discretion.
It's common to see distributions made to the children when they reach ages 20, 25, and 30, or an early lump sum distribution made upon graduation from college. The options are endless.
On occasion, parents are comfortable allowing their children to have access to the assets when they reach age 18. However, more often, that's not the case.
If you do not want your children to have access to their full inheritance at age 18, some type of trust will be required to hold the assets for the children until the children reach an age the parents feel comfortable handing the reigns over to them.
Families with a special needs child will have some additional considerations to think about. If the child is receiving any federal or state aid, he/she may become ineligible for any needs-based government benefits if he/she receives an inheritance.
To avoid this, a special needs trust will need to be established for this child. Again, someone needs to be named to manage the assets and to care for this child.
No matter what type of planning is done, it's important to make sure beneficiary designations on insurance policies, retirement accounts and other assets are properly coordinated with the rest of the estate plan.
Estate planning done by parents with minor children raises a number of different considerations than estate planning done by others. Spend some time thinking carefully about who you want to name in the different roles in your children's lives. These decisions can affect your children for a lifetime, so don't make these decisions lightly.