If you have a young child who depends on you, it’s important to ensure they will be taken care of if a crisis leaves you unable to. By making an estate plan, you can deal with the care and custody of your child and give directions on how your money and property should be used to support their well-being in case something happens to you.
Care and Custody of Your Child
Creating an estate plan allows you to name someone to care for your minor child if you are unable. A child under the age of majority (eighteen or twenty-one depending on your state law) cannot legally care for themselves (unless they have been emancipated). A guardian must be appointed to take care of the minor child if both parents have passed away or are unable to care for the child. It is important to note that if the other legal parent is still alive, that parent may receive custody of the child. Nonetheless, it’s crucial to have a contingency plan if there is no other legal parent or if the other legal parent is unable to care for the child. If you fail to select a guardian, the judge will refer to state law to determine an appropriate guardian, which may not align with your preferred choice.
How do you nominate a guardian?
There are a few different ways to nominate a guardian to care for your child after your death. First, it can be done in a will. In this document, you can name someone to be your child’s guardian after your death, a person to settle your accounts and distribute inheritances, and provide any instructions. Similarly, you may use a pour-over will to name a guardian for your child upon your death. A pour-over will also allows you to name your trust as the beneficiary of any money and property that goes through the probate process.
How do you name someone to step in when emergencies arise?
While an estate plan usually focuses on planning for your death, it is also important to plan for the situation in which you are incapacitated and unable to act or make decisions. This includes naming someone to temporarily care for your child. In addition to delegating your parental authority when you are unable to act, this document can be used if you are traveling and need someone to make decisions for your child. It is important to note that this document is only effective for a short period (six months in some states), and your chosen person cannot agree to certain actions, such as the child’s adoption or marriage.
Rules for Your Child’s Inheritance
Who will be in charge?
A non-emancipated minor child cannot handle their own financial affairs; they need an adult. If you pass away without an estate plan, the other legal parent may be in charge of managing the money and property you have left to your child. If the other legal parent is unable to manage your child’s inheritance, then the court will have to appoint someone. An estate plan allows you to name the person you want to control the money and property. Without an estate plan, the judge can only use state law and the people who appear in court to determine who will manage the inheritance.
When and how will your child receive their inheritance?
If you do not have an estate plan, your child’s inheritance will be managed for their benefit until they reach the age of majority, and then it will be given to them outright. Although they will be a legal adult, they may not be prepared for a large influx of money and property. The money could easily be misspent or otherwise used for purposes you find inappropriate. With a trust, you can draft instructions for exactly how you want the inheritance to be used. You can create a revocable trust or include these instructions in your will (known as a testamentary trust). The important distinction between these two options is that a will has to be filed with the probate court, and the proceedings will be public and overseen by a judge. A properly drafted and funded revocable trust, on the other hand, can be managed without probate, and no documents need to be made public.
There are many options available to you when crafting instructions for how your child’s inheritance should be managed and distributed. Your minor child can receive a percentage upon reaching a specific age (e.g., 50 percent at 30 years old and the remainder at 50 years old). You can also structure your child’s trust as an incentive trust to allow the trustee to give your child money only after they meet certain goals (e.g., successfully completing postsecondary education, being sober for one year). Alternatively, you can leave the decision of how and when to give out the funds exclusively up to the trustee’s discretion. This is sometimes referred to as a discretionary trust. Because your child will not be guaranteed a specific amount of money or piece of property, the funds will be better protected from any future creditors or divorcing spouses that your child may have. However, when deciding to use a discretionary trust, it is important to choose your trustee wisely and provide clear guidelines for the trustee to consider.
When deciding on the trustee for your minor child’s trust, you have several options to consider. You can select a family member who knows your child well and understands your intentions. In case you don’t have any suitable family members for this role, you can turn to your close friends. These individuals may already have a significant presence in your child’s life and grasp your wishes. Alternatively, if you don’t have someone you trust to be the trustee, you can hire a professional trustee. However, it’s important to note that professional trustees charge for their services, and many will be uninterested in estates below $500,000. While all trustees are entitled to compensation, professional trustees may be more expensive and have predetermined fees.
Although state law will provide your child with a guardian, someone to manage their inheritance, and a distribution plan for their inheritance, this is the least desirable result. You have the power to design an estate plan that is unique to your child’s circumstances and allows you to choose the most trusted individuals to guide them if you are no longer able to. We would love the opportunity to help you create the best plan for you and your child or to update your existing plan. Call us to schedule an appointment.