Estate Planning for Parents with Minor Children
If you have minor children, here are some important considerations when creating your Will. Keep reading to learn more.
Parents…especially with minor children…have extra reasons to do their estate planning and not wait. As a parent of young children you want the best for them at every age, whether they are infants, or starting school, or learning to drive. Planning ahead is part of being a parent. That also means doing estate planning, too.
You expect to be there to help them…but what if you can’t someday? No one wants to assume the worst might happen. Yet the responsible thing to do is to have your planning in place. Responsible parents hope nothing bad will ever happen, but just in case they take steps to make sure their child gets the upbringing they need and protect their finances, too.
Let’s review the basics of estate planning for when you have young children.
What is Estate Planning
Some people estate planning is complicated and expensive, until they learn more. Knowing how estate planning works and how to do it will make getting started easier, and you’ll feel better.
Estate planning simply means setting things to be managed according your wishes, upon your death or incapacity. This starts by having properly signed documents valid for your state, including your Will and Powers of Attorney.
Your Will names who will settle your estate if you die, and gives instructions about who will receive your home, bank accounts, belongings, and your other property. Your Powers of Attorney authorize someone to make financial and medical decisions if you cannot do so. Both are important parts of estate planning.
People with routine situations who want to create their own documents can do so themselves, quickly and inexpensively, and be prepared in case the unexpected happens. More complicated situations require help from an estate planning attorney, such as parents with children who have special needs, or to ensure your assets pass to your children even if your spouse remarries.
Estate Planning For Parents
Estate planning needs depend on your situation. Even if you had Wills in place when you were single or just married, now that you’ve become a parent you should revisit your estate planning.
The concern of course is that unfortunately, sometimes one or both parents die with minor children surviving them. That could be an automobile accident, illness, or other reasons. If that happens for whatever reason, then things will turn out better for a child whose parents planned ahead. Failure to do estate planning means the courts and not you decide who will raise your children and what happens to your house and bank accounts. It also means your child will receive their inheritance automatically at age 18. Few 18 year olds are ready to make good financial decisions, and you can make sure that doesn’t have to happen.
As you may know, by law minors (children under age 18) cannot make contracts, own real estate, or make most medical decisions. Their parent does those things for them, and when there is no parent that’s when a minor child needs a Guardian. You can name who you should be your minor child’s Guardian through your Will, as explained below.
It’s important to note that a parent is considered the minor child’s natural guardian. That means if a parent is living then that parent will be the child’s guardian, even if the child’s parents were already divorced. The surviving parent can consent to having another guardian named, but that is not under the control of the deceased spouse.
If you have a routine situation, here are important things to consider and discuss with your spouse, to begin preparing your estate plan online.
- Naming Guardians – Who would you trust that would be able and willing to raise your child and manage their inheritance as legal Guardian? Often this is a close family member or a trusted friend or step-parent. You should name a backup Guardian in case the first person you name is unable to fill this role for any reason. For example, you might name your own parents as Guardian, but if unable to serve then the backup would be your sibling. In North Carolina, the best place to name the Guardians is in your Will.
- Your child’s needs– When considering potential guardians for your children, you should consider your child’s age and the age of the potential Guardians. For example, you may want your parents to be Guardians for your young children, but your parents live in another state, and you want your children to remain local. Or perhaps your parents’ health could be a concern. Parents with children who are disabled or have special needs need to give special consideration to naming the right guardian.
- Will and Power of Attorney – These are both important parts of estate planning. Your Will covers what happens if you die and ensures the people you want to receive your property and that someone you trust settles your estate. The person who settles your estate is your Executor and can be the same person or someone other than you name as Guardian. Your Power of Attorney covers what happens if you are living but are unable to make your own decisions. You will name an Agent in your financial and medical Power of Attorney documents, to make those decisions for you if you can no longer do so yourself.
- Age to inherit – If your Will leave assets outright to minor children, then the named Guardian will look over and manage the child’s inheritance until age 18. When there is a large amount of money or other property involved, proper planning would be to delay the child’s inheritance past age 18. For example, you might delay the inheritance until the child reaches age 25, or you could stagger their inheritance to be received half at age 25 and the rest at 30. To do this, you would need to include a Children’s Trust in your Will.
- Life Insurance and IRAs – Some of your assets are controlled by beneficiary designations and not your Will. For example, life insurance and IRAs pay out to the named beneficiary. For a married couple with minor children, that means generally the other spouse will be the primary beneficiary named. If you have large amounts of life insurance or retirement accounts, you should consider naming the Children’s Trust as the alternate beneficiary (just in case neither spouse is living). Otherwise, those funds will need to be administered through the minor child’s Guardianship and the inheritance is paid over to the child age 18…too young for most children. You should consult a lawyer or CPA about the tax consequences of leaving an IRA to a Trust.
Creating Your Will
For routine estate planning (such as a married couple, minor children, all to the surviving spouse otherwise to the children equally) you could prepare your Will online or use a law office.
More complicated situations or special beneficiary considerations (such as a child with special needs) definitely require a lawyer consultation.
Using a Children’s Trust Under Your Will
As mentioned above, your Will can defer the distribution of assets to your younger beneficiaries, so that they don’t get direct control of their inheritance. That is done through the Children’s Trust in the Will. The Children’s Trust will name a Trustee, who is someone to look after the trust fund and use the money for the child according to your instructions. Then, at an age you designate, the Trustee distributes the remaining funds to your child. This allows the Trustee to use the money in the Trust funds as needed for the child until they are old enough to manage the funds themselves and make good decisions.
The Trustee of the Children’s Trust can be the same person or persons who you name as Executor or Guardian.
The Children’s Trust allows your children to receive their full inheritance, just at an age older than age 18 so they are better able to handle it.
At NC Estate Plans Online, we want the best for each person who works with us. Get started to today to secure a safer financial future and upbringing for your minor children.
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