If you have minor children, your estate plan will obviously revolve around their care and upbringing. You need to make sure you have the right people involved, and the right tools in place.
Guardianship and custody
Here’s your first planning question: who will take care of your child (or children) if you die before they are on their own? It’s unlikely to happen, of course — but it does happen. You owe it to your children to think through the best choices.
Of course, it one parent dies normally the other parent has the automatic ability to step in and handle child-raising duties. If you are a single parent, and even if you were granted sole custody over your child, the other parent will usually have the right to custody and control of your (and their) child.
There are exceptions to that rule, of course. Sometimes, too, a surviving parent is unable to take responsibility for child-raising. Rarely, but occasionally, both parents might die together. Even if your child has another parent, you need to identify who should be guardian if the unthinkable should happen.
If you fail to make this decision, will your minor children have to go to some state institution, or be unable to visit your family? Of course not. But your choice of guardian will have a much easier time dealing with the legalities if you have completed your estate planning documents.
Handling finances
Although your minor children’s other parent(s) will have priority for custody, the same is not true for finances. If you leave money for your minor children, you can control who will be responsible for managing those finances. That includes life insurance, retirement and financial accounts, your house and everything else. You get to decide who will be in charge of their inheritance, and for how long.
There is a bewildering range of choices. You could set up Uniform Transfers to Minors Act accounts for your minor children. Instead, you could name them directly as beneficiaries (but please don’t). Your best bet: create a trust for the benefit of your minor children, naming a suitable trustee and the terms of distribution. If you are like most people, you might hold back final distribution until age 25, or 30, or later. In the meantime, you could let the trustee make payments for health, education and support of your child or children.
Failure to plan
What happens if you don’t make a will or trust, or if you name your minor children directly as beneficiaries? A lot of expense, a loss of control, and too much involvement of lawyers and courts.
That’s one of the great ironies about estate planning for your minor children. If you try to save costs and lawyer contacts by doing it yourself, and particularly if you name your minor children as beneficiaries directly, you will end up costing extra fees.
That’s because the alternative to a trust for your minor children is usually a court-managed conservatorship (not every state uses the same term, so this advice is limited to Arizona parents). Not only is a conservatorship the most expensive alternative, but it also represents loss of control. Your minor children will receive their inheritances outright at age 18 — which most parents think is just too young. That will happen regardless of their circumstances on their 18th birthday.
Choosing a trustee
Choosing a guardian for your minor children is hard. Finding a suitable trustee is almost as hard.
Keep in mind that the two roles do not have to be filled by the same person. One close and loving family member might be great with the kids, and another a whiz at finances. You might have a professional in mind for the money management.
The same skills you should look for in a trustee will also serve your children well if you choose to set up a UTMA account. The person named to manage the money in a Uniform Transfer to Minors Act account is the “custodian,” but the role and duties are very similar. The big difference: a UTMA account has to be distributed to your children at age 21 — that’s better than 18, but usually not good enough.
When you meet with your estate planning attorney, you should have thought through who might make a good guardian and who should be trustee. But your attorney will help you sharpen those notions and give you a little clearer guidance; that’s what good lawyers do.
What about grandparents?
Perhaps you wonder how the rules are different for grandparents. There are a few ways that grandparent planning changes:
- Normally, a grandparent has little or no control over guardianship for the grandchildren.
- A grandparent is very likely to have amassed more financial resources, and so have even more concern about selecting a suitable trustee.
- In our experience, grandparents often extend the final distribution date for their grandchildren even farther than parents. That might be based on life experience, seeing how old an individual should be before they receive complete financial control.
Of course, many grandparents leave most or all of their estate to their children, counting on them to take care of their own children (the grandchildren). That’s not always the case, however. Besides, adult children sometimes actually die before their parents, leaving estate planning to favor the grandchildren.
