No parent wants to think about the possibility that they won’t be around to watch their children grow up. But thinking about it – and planning in the case of it – is actually what will do the most good to care for the next generation throughout their lifetime.
When the parents of minor children are deceased, two critical factors lie in the balance – who will be their guardians and what happens to their inheritance.
The big impetus for naming a guardian is that when parents don’t, the families will be left fighting about who should be in charge. Even if in-laws get along wonderfully now, if there is a situation where both spouse’s parents think they are the best fit, it can become tense. Throw in additional factors like families living in multiple states, and guardianship disagreements escalate into ugly situations.
Inheritance can be an equally touchy subject if a plan is not set up ahead of time. It is important to note that many people underestimate their net worth. Two average life insurance plans, two 401(K) retirement plans, and one modest family home can easily add up to an inheritance of $1 million. With no plan in place, the inheritance will enter a custodial account and the day each child turns 21, their full portion of the funds will be released. I don’t know about you, but if I was given $500,000 at age 21…it probably wouldn’t have lasted very long.
When you as parents take time to make your own plan, you get to set the parameters for guardianship and inheritance, ensuring your wishes are honored if the unthinkable occurs. A comprehensive estate plan consists of legal documents including a will and a trust. Where a will provides direction on how you would like your assets handed down and assigns guardianship to minors, a trust protects your legacy, privacy, and retains control over your wealth.
Following are some common parameters parents include in estate plans that would be difficult to protect otherwise:
While you can’t control most aspects of how your children will be cared for by their guardians, you can use your trust to set your intentions. For example, setting money aside for musical instruments, sports expenses, summer camps, or college education. Or, while the guardian will have access to the trust to cover payments related to the health and wellness of your children, you may want to leave them money as a gift to use for themselves. If pets are part of your household now, you may want to set up a way for them to stay with the children under the guardian’s care, if possible. Consider your dreams for your family now, and how you may still be able to make them happen through the way your estate is managed in your absence.
You can establish a trust with money available to use at the trustee’s discretion until the beneficiaries are at an age or maturity to control the purse strings. This allows them to comfortably make payments on items like housing, clothing, education, and vacations, but prohibits payments for business investments or delaying employment. A delayed distribution could look like this: one-third of the funds are released at 25 years old; half are distributed at 30; and then the remaining funds are released at 35. This scenario allows for the freedom to enjoy some of the inheritance but also the ability for children to complete their education, gain job skills, and build work ethic. It also makes sure there is money still available when the children are older, more mature, and may have long-term priorities your legacy could contribute to.
There are no rights to an inheritance. Next of kin and probate law are only enforced when there are no other plans in place by the deceased. So, if you have protections that you want enforced so a guardian does not have full access to assets, you have philanthropic goals after the children turn 18, or there are specifics around making sure your family is cared for and the money used wisely, a trust is the ideal place for the proceeds.
Putting an estate plan together is easier than most people think. Schedule a free consultation with Block Legal Services to learn more about the time and investment required. We are available for short, no-cost phone calls to see how we can help, or, for a risk-free one-hour meeting if you are ready to get started.