Starting in Spring I begin getting phone calls as parents plan vacations away from their minor kids. Understandable, parents want to make sure that if something happens to them while they’re on a trip, their kids will be protected. I’ve talked before about planning for minor children, but I thought it was time for a refresher.
I’ll quickly mention again there’s actually two sides to planning for minor children: the physical and the financial. For minors, the court requires a legal competent adult to be in charge of the welfare of the minor child. This is done through guardianship. The court will hold a proceeding to determine who this adult will be. The only way the court will consider the parents’ wishes is through a will. If there is no will, the court will determine on its own who should be in charge of your children. Probably a scary thought if you have differing values from some of your family (or at least it should be).
It can be hard choosing the person who would raise your children if you cannot, but I find this worksheet to be a helpful place to start.
The other side of planning for minor children is financial. If you place more than $10,000 of assets in a minor child’s name, Missouri requires the probate court to be involved. If you have a will, this might specify who is in charge of the assets, but it must still go through the probate court to be valid.
A lot of the clients I see try and avoid this through placing an adult’s name on the assets instead of the child’s. I hope needless to say, this is a very bad idea. First of all, that person then has no legal obligation to use that money for the benefit of the child. Even beyond this, the money is then at risk to any creditors or liabilities they have. But the largest drawback I see with this is that the assets are then subject to that adult’s estate plan (or lack thereof). If that adult becomes incapacitated and unable to access the money themselves, there is no way to legally use the assets for the child. Worse, if that adult passes without an estate plan taking this into account, the money most likely will not go to the child.
I also have some prospective clients who have a testamentary trust. This means the trust is established in their will not by a standalone trust document. There are two major drawbacks with this type of trust. First, the will must go through the probate court in order for the trust to exist. Secondly, because the trust does not exist until after death it can be difficult to properly title assets to avoid probate.
The other hesitation for many parents is that this plan is only necessary if both parents pass. While this is true, you cannot unfortunately plan on the circumstances surrounding estate planning. It’s much easier to plan in advance than clean up the mess left behind. Planning is much less expensive done proactively and work does not need to be done twice if a plan is established beforehand.
This is why for most young families, even when I get asked about wills, I strongly recommend a trust in addition to the wills.