Every adult should have a basic estate plan, but as a parent, estate planning becomes even more important. The knowledge that your children will be financially secure in the event of your death provides incalculable peace of mind. Thus, when planning your estate, think about how you want to leave an inheritance to your children.
Read on to learn and discover the foundations of a basic Last Will and Testament, the fundamentals of a Trust, and how they work together when leaving assets for minor children.
Understanding The Foundations of a Last Will and Testament
Your Will is intended to expresses your wishes for who is to receive property from your estate. These gifts or “bequests” to loved ones, charities, or even your family pet are defined in detail in your Will. In addition, your Will specifies who will be the Executor of your estate. During the probate process, your Executor’s role is critical. Most importantly, in the event of your death, a Will is the only legal document that can be used to appoint a Guardian for your minor children.
The Fundamentals of a Trust
A trust is an agreement in which one party holds property for the benefit of another. A grantor appoints a trustee to oversee the management of his or her property. The Trustee is in charge of managing the trust’s assets.
Trusts can be created while you are alive, most commonly a living trust. They can also be created through your will or through another trust, and don’t actually exist until after you die. These trusts are referred to as testamentary trusts. It is important for parents of minor children to create a trust, whether through their will or a living trust, to hold any estate assets for their minor children. This is because minor children are not legally allowed to own property. If no trust is created and a child inherits property directly the property is either placed into an UTMA account (Uniform Trust for Minors Act) and held until the child is 21, or a guardian is named by the courts and holds the assets. Guardianship over funds is expensive and requires court approval for most expenditures, leaving little flexibility to the Guardian when trying to provide for the child.
Creating a trust for minor children will allow you to name a trusted family member or friend to hold the money and act in their best interest. It also allows you to provide strict and detailed instructions for when and how money should be used to support the child. This allows you to ensure your goals and values are instilled in your children. Providing for education, down-payment on a home, starting a business, or funds for a wedding are all common items that can be included in a trust.
A Will vs. A Trust
In the event of your death, a Will or a Trust can be used to provide financial security for your minor children. While they serve a similar purpose, these two differ in a number of ways.
Minors are not permitted by law to inherit directly from their parents. As a result, any assets left to a minor child must be managed by an adult until they reach the age of maturity. If, on the other hand, you leave assets in your Will, a court may decide who manages the assets. Furthermore, when assets are bequeathed in a Will, you have little control over how they are distributed. Finally, because assets left in a Will must be probated, they may not be available for your child’s support and maintenance for an extended period of time.
If you decide to leave assets to your children in a trust, you can name the Trustee, or the person who will manage their inheritance. You can also use trust terms to control how assets are distributed and used. You could, for example, designate a monthly or annual distribution for routine expenses, as well as a procedure for emergency or special distributions. Finally, trust assets are not subject to probate and can be distributed as soon as you die.
Planning for the Future
Naturally, parents want the best for their children. The stakes become even more valuable when the children are younger. While you can entrust your children to a trusted guardian (in the event of your untimely passing), know that providing them an inheritance is also a critical move that could protect their future and wellbeing. It is essential that you work with an experienced attorney who can help you set up the right plan for your loved ones.
Are you in need of an estate lawyer? Cherewka Law is here to tailor their estate planning expertise to your needs. Discover more with us today!