It may not be the most pleasant situation to think about, but if you’re a parent with children under the age of 18, then you owe it to them to plan for what would happen to them should something happen to you. They’re counting on you to protect them and ensure their future, as any parent should. And you can do that by putting together an estate plan to make sure they are financially taken care of and brought up in the ways you value most.
Your will or trust may designate guardians for your children should something happen to you, but if you want to ensure your children are raised exactly how you want and that your finances are appropriately used to do so, then you need to put guardianship and asset documents into your estate plans.
Choosing a Guardian for Your Children
Your first step when putting together an estate plan with your children in mind should be choosing a legal guardian. This person will become your child’s primary caretaker should you—and other current guardians, like a spouse—die or become incapacitated. This person should be someone you can trust in a multitude of ways, but most importantly, you should trust that they want to care for you children. So have a conversation with your prospective choices first.
A guardian will take physical custody of your children and will be responsible for their health, safety, legal decisions, and other life decisions, like where they will live and attend school. Consider your guardian’s age, stability (both from a health and financial standpoint), and geographic location. If you select a married couple to serve as guardians, include instructions in case they divorce.
You should also trust these new guardians to be fiscally responsible with your children, and trust that they will raise your kids the way you intended to raise them. Certain aligning values and world views are important characteristics that all parents pass along to their kids. If you don’t take the time to vet what those values are in your designated guardian, your children may not grow into the adults you’d love for them to be.
It’s also imperative to name backup selections for your primary guardian choices in case your first choice in unable to serve for any reason. Your first choice in guardian may pass away or become unfit to care for your kids, and if you don’t designate other choices, it will be left up to the court system to decide who will care for them next. That’s never an easy situation for children, no matter what age they are or where they may end up.
Distributing Assets to Your Children
Deciding on how you want your assets bequeathed to your children in the event of your death is most dependent on the size of your estate, the age of your children, and their personal circumstances. For example, is your 17-year-old ready to inherit your estate in its entirety? Do you have young children who need limited funds made available to them? Do your children have any special needs? These kinds of questions are important to consider when decided how your children should receive your assets. There are several basic options for distribution:
- Outright Distribution: This is the simplest choice because it makes it so that when your estate is settled, your children will receive their full shares of it. For smaller estates, this could be a fine option, and it may even be wise to give your children access to money they need sooner rather than later. But also keep in mind that younger, less financially mature children may not be ready to receive control of any sum of money.
- The Uniform Transfers to Minors Act (UTMA): This distribution option allows a minor to receive money and other assets left to them without a guardian or trustee to sign off on it. In most scenarios, a custodian will manage the account until the child reaches age 25 and the assets are transferred to them outright. This makes it so that your estate is protected from frivolous access by your children until they have grown, become more fiscally responsible, and can be trusted with full access to any remaining funds.
- Trusts: Whether your estate is large or small, if you want to limit your beneficiary’s access to funds in a specified manner, a trust is the best option. Not only does it keep minors from controlling too much money too early, but it can also protect your assets from creditors. If the beneficiary files for bankruptcy or divorce, the trust assets cannot be claimed. You can make any provisions to your trust you would like so that your children will have funds as needed for things like enrolling in private school or starting a business. You will also need to name a trustee to oversee the trust until your child can claim it. This person does not need to be your specified guardian, although it can be.
Other Considerations for Your Estate Plan
Naming appropriate guardians and creating asset distribution plans are two of the most important things you can do to ensure your children are taken care of when you’re gone. And it’s important to have these documents put in place the moment you have your first child, as you can never predict what the future holds. It’s also important to go back and make changes to these documents as your children grow if necessary. If you’ve made an estate plan for your first child, but haven’t updated it since having your second or third child, you must. Never assume all three of your children will be cared for the same way as the only child who is included in your planning. You should also never assume that the first child will divvy up your assets to their siblings in the manner you would want them to without explicitly stating so in your estate plan.
It’s also important to consider how your life insurance policy and retirement plans may play into your estate assets. Beneficiaries of things like 401(k)s, IRAs, and life insurance policies are not impacted by the instructions in your will. So make sure the beneficiaries listed on these accounts are aligned with your estate plan.
There are a lot of elements to consider when it comes to creating a solid estate plan that ensures your children are taken care of after you die. If you haven’t created an estate plan, or would like to review your existing plan, The Whisler Law Firm can help. Our estate planning team has expertise and passion you can rely on to create the plans your family needs. Call 833-529-5677 or contact us online so we can talk about your best options for making sure your children are taken care of.