Wanting to protect your children when you aren’t there to do so is one excellent reason to develop an estate plan. Here are some leading child-related issues to consider when estate planning for parents:
Guardians for Minor Children:
Ordinarily, a surviving spouse will get custody of children under the age of 18, unless there is strong evidence of unfitness, such as having abandoned or mistreated them. But to protect against the possibility of both spouses dying in a common accident, or at times close to each other, your will should designate at least one successor guardian to raise your children if your spouse does not long survive you.
In choosing a personal guardian, you’ll want to consider factors such as the individual’s willingness and ability to step in, if necessary, to bring up your children (the wills of many people also name an alternate guardian, if their first choice is unable to serve). If a guardian named in your will later becomes unavailable or unsuitable, you can easily amend your will to name a replacement (one more reason you’ll want to check will and/or trust documents regularly to see if updates are needed).
Parents concerned that their choice of guardian for their children may not be capable of managing funds or property intended for the children can explore alternatives, such as separate guardians for the children and their property, or creating trusts for the children, leaving the funds or property contributed to the trust to be managed by trustees.
It’s possible to choose different guardians for different children, although you’ll want to consider the hardships of separating siblings. A court’s review of these appointments will weigh whether they serve the best interests of the children involved.
Leaving Property to Children:
It’s very common for married couples’ wills to leave their entire estates to the surviving spouse, naming their children as alternative beneficiaries. Single parents, on the other hand, often name their children as direct beneficiaries. In any event, if a minor child receives an inheritance, there will have to an adult or entity appointed to manage the assets until the child attains legal age.
There are a number of ways to handle this. A parent’s will or living trust document could name a property guardian, or property could be transferred to the child under the Uniform Transfers to Minors Act, naming a custodian for the property until the child comes of age. Other options include directing specific property, such as insurance policies or annuities, into separate trusts created for each minor child.
Timing Distributions to Children:
Even if beneficiaries have attained the age of legal majority, some parents are reluctant to entrust an entire bequest in one lump sum to a young adult, fearing the young beneficiary may not yet have developed the maturity to manage it properly.
One possible solution to this concern could be phased distributions, so that the entire inheritance is received in fractional payments over a specified period of years. For example, in her will, England’s Lady Diana provided that each of her two sons, Prince William and Prince Harry, would receive half of their inheritance on turning 30, and the other half some years later.
Trusts can be used in many ways: to create installment payments, or to provide incentives to reward accomplishments the parent favors, such as marriage or graduation from college. Setting up a single family trust, sometimes called a “pot trust” for all minor children gives the trustee discretion in when and how much to distribute until all children have received legal age, though it may mean older children don’t receive their full inheritance until their youngest siblings have all reached age 18.
Please feel free to contact this office if you have questions on how to handle estate planning issues related to children.