How To Take Care Of Your Children When You’re Gone Through Estate Planning
Start By Thinking About It
Now that the holiday season is in full swing, we parents know that it’s pretty much all for our children. We work so hard to make them happy and give them a good life. What’s often overlooked is the importance of how to protect them in the event of our untimely death or disability. It’s human nature to avoid these unpleasant thoughts. Few parents will immediately begin working on their estate plan after reading this article. Before taking action, there must be thought. The purpose of this post is to make parents aware of the issues and start thinking about a plan for their children’s care in the event they die before the children have grown up. We will share how you can take care of your child while you are going through estate planning.
Starting An Estate Plan
The two main ways to prepare an estate plan are through a family trust or last will and testament. Either way, the trustee is an important player. The trustee is the person named to oversee and manage all assets for the benefit of minor children. The assets to be managed include everything of value left for the children. These include life insurance benefits, cash, real estate and any other assets.
When families set up a living trust, they typically name the parents as trustees. In the case of a two-parent household, our clients will usually be co-trustees with survivor rights for the surviving parent to assume that role upon the death of one parent. If the surviving parent should die before the children are old enough to own assets “no-strings,” there would be a successor trustee named and standing by to take over those duties.
What’s Probate And Do We Need To Avoid It?
A common reason to use a trust is to avoid probate. Probate is the legal process to oversee the distribution of a deceased person’s assets to others. The use of a trust avoids probate because the trust itself owns the assets instead of the individual who may die. Accordingly, there’s no transfer of ownership for which probate would be needed when the person dies.
Whether it’s worthwhile for a family to create a trust to avoid probate is a more complex discussion for another article. The main reasons to avoid probate are the legal costs and delays likely to be involved, among other concerns. The downside to creating a trust is that it will be more expensive than using a will. The legal work is more complicated and time-consuming, so legal fees will be higher.
Making An Inventory of Assets
For busy people, it will likely be a burden to put the time into funding the trust. This involves taking an inventory of the family’s assets and actually transferring title of them into the trust. Many families and individuals pay legal fees to create a trust that ends up being worthless for failure to “fund” the trust by transferring title of their assets into the trust.
A better fit for many families is a last will and testament. Probate will be needed, though it’s much easier to avoid probate when the first parent dies. This is because many couples own all their assets jointly with survivorship rights. Thus, if a father dies and all his assets were jointly-owned with his wife as marital property, there would be no need for probate because the wife would automatically step in to his shoes as the sole owner. There are also assets with beneficiaries built-in that are transferred outside of probate. These are most commonly life insurance benefits and retirement accounts.
How A Child’s Trust Helps Your Family
Should a family with minor children choose a last will and testament instead of a trust, a trust would still be part of the estate plan, but come into play differently. The following is the most typical scenario. A husband and wife draft their respective wills. Each parent leaves everything to the other to manage for the benefit of the family. When the last parent standing dies or they die simultaneously while some or all of the children are still minors, a trust springs in existence. This is known as a “testamentary trust.”
Also, a trust provides the ability to control how and when children draw the money. Knowing their kids better than anyone, the parents can decide to remove the strings on the money at the appropriate age or after achieving certain milestones.
Carefully selecting the trustee is crucial. The trustee should be good at managing money and wise enough to hire professional help when necessary. The trustee, as the name implies, should be very trustworthy. The trustee may be a close family member or friend or a professional such as a CPA, attorney or financial advisor.
Your Child’s Guardian For Estate Planning
The other important role to be assigned is the children’s guardian. This person takes over raising the children for the deceased parents. As with a trustee, the guardian would not likely step in until the death of the final parent. It would be convenient for the trustee and guardian to be the same person, but sometimes a good parent would not be a good money manager and vice versa.
When parents make clear in an estate plan who they want to serve as guardian, they will likely prevent legal battles that may arise. Without a clear statement of their wishes in writing, various family members could come forward to raise the children following the parents’ deaths. If there’s disagreement over who should take over, the conflict may end up in court. The costs, both financial and emotional, will be high and the children will suffer.
In life, we need to expect the unexpected, especially when the well being of our children depend on it. Without proper planning including life insurance, estate planning and selecting a trustee and guardian, our children are exposed to great stress, uncertainty and hardship. All families should seek expert advice from a team including a financial advisor, accountant and attorney to be fully prepared in case the one sure thing in life doesn’t arrive on schedule.