Most of my clients contact me because they want to make their children’s lives easier. Several call after they have lost a parent and dealt with the mess of someone who wasn’t prepared. Often I hear the sentiment they never want to make their children go through what they’ve had to do. So, with this in mind, I thought we’d talk about preparing for your kids, specifically minor kids.
There are two distinct areas of planning when you’re talking about your children and estate planning. And they really apply to everyone with minor children. First is guardianship. If something happens to both parents, who will take care of the children? Most people know maybe have even told someone. But have they made it legal? Having a conversation with a desired guardian or other friend is great and definitely recommended, but doesn’t mean your child will go to that person. A will is the ONLY way to state your wishes for guardianship. If you do not state your wishes there, the court will make that decision without your input, and most likely choose an older sibling.
So, now that you know how to legally choose a guardian, who should you choose? There’s a long list of considerations and each person is going to have a different level of importance with each factor, but in my mind the first qualification is trust. For instance, one of my best friends chose my husband Scott and me to be the guardian for her son. Now, we’re about 500 miles away from her and her son, so we don’t get to see him that often and if we do end up being his guardian, he’ll be coming to us. Honestly, not the perfect situation. However, she doesn’t think her family will raise him with her values in mind. She trusts us to make those decisions for him. In addition, she trusts us to say no if it’s not the right decision at the time.
Hopefully, you’re in a position where several of those people come to mind. No matter your initial thoughts, I would strongly recommend taking the time to fill out a Guardianship Worksheet. You can find one at the end of this article.
The next consideration is financial. Even if you don’t have enough to provide for your children for the rest of their lives, you’ll probably be leaving them something. If you leave more than $10,000 to a minor without a custodian, the court will appoint one. Again, this takes away your ability to choose who controls your children’s money. Essentially, this means you don’t want to leave more than $10,000 directly to a minor. However, if you give that money to another person without legally specifying it is for the benefit of the child, they have no legal obligation to use the money for the child.
If your estate passes through your will, you may add a provision giving a person control of your child’s assets (either called a conservator or a trustee). However, if you want to avoid probate and plan to use beneficiary designations or other non-probate transfer (pay on death, transfer on death, etc) you cannot just list another person as the beneficiary and expect them to use it for the child. The easiest way to avoid probate and to designate an adult to control the money is to set up a trust. This person is called a trustee and must use the money for the child’s benefit.
As you consider choosing a conservator or trustee, keep in mind, this does not need to be the same person as the guardian. Doing so will make the guardian’s life easier, but if your chosen guardian is not great with money or just needs some oversight, a separate trustee can provide that. I’ve also seen parents who want to involve both sides of the family and will choose someone from the mother’s side for the guardian and someone from the father’s side for the trustee. No matter the arrangement, having two different people as guardian and trustee make the
situation more complicated and the two people must be able to communicate well. This structure should only be used after much consideration.
Finally, unless specified, a minor will be entitled to their money when they turn 18. Will your children be responsible enough to control their money at 18? If you’re not sure, or doubt it, you can set up a trust (along with a will containing a trust) with specific ages or life stages (i.e. graduating college) when they can access their money. A trust also allows additional controls on how the money can be used (school, cars, vacations, etc).
As you can probably tell, for most families with minor children, I recommend a will (stating guardianship) and a trust (controlling the assets). It doesn’t take much, only $10,000, before naming a trustee has its benefits. But no matter the documents used, whether will or trust, there’s a lot to be considered when planning for your children. This gives you a place to start, but a lawyer will help you finish the process.