When weighing your options for estate planning, you want to ensure that if the unfortunate were to happen to you, your young children would be financially secure and well-protected. Keep in mind that with a Will alone, you are very limited in the type of planning you can do for your minor children or grandchildren.
Highlighted below are three important reminders regarding Wills when it comes to planning for minor children:
#1 With a Will alone, the Court appoints a Conservator who manages the finances of the estate under Court supervision.
#2 A Will allows for outright and full lump-sum distributions only.
#3 With a Will, minor children inherit all at age 18.
Consider the following scenario:
John and Lori are a married couple who have simple “I love you wills” which direct that everything be left outright to the survivor of the two and then to their two small children, Julie (age 12) and Michael (age 8), in equal shares.
Should John and Lori pass away at the same time, the Court would not simply distribute an inheritance to Julie and Michael. Instead, as whenever there is a minor involved, the Court would appoint a “Conservator” to manage Julie and Michael’s respective inheritances under court oversight until the age of 18. And at the age of 18, Julie and Michael would receive their respective inheritances in a lump sum.
Many parents do not want their children to receive a large inheritance at the age of 18. Instead, most prefer that their children receive their inheritance at a later age, such as upon graduating college, getting married, or reaching other certain milestones, etc. However, with a Will alone, when it comes to planning for minor children, you have no option for staggering distributions to your kids or grandkids.
In addition, the Court-appointed Conservator is paid from the estate. As in the above scenario, a conservator would be in place along with court oversight for Julie for six years and for Michael for 12 years. As a result, the children would get substantially less of an inheritance.
Creating a Trust
Often parents and grandparents create a Trust to hold assets for minor children until they reach a certain age in adulthood. For example, a life insurance payout can be paid into the Trust if both parents die or savings accounts in the parents’ names can be directed to the Trust and distributed to the child at age 25.
Parents can also stagger Trust distributions so that children receive smaller amounts of money throughout their adult lives rather than one lump sum. That way, a child who may be irresponsible at the age of 25, will still receive some inheritance, but will not squander the entire amount.
There is no better reason to have an estate plan in place than for the well-being and protection of your kids or grandkids. Parents and grandparents of young children face major estate planning decisions. Contact Socius Law Firm today for help in planning for minor children and understanding the benefits of various foundational estate planning options.