Most parents want to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles, and good friends sometimes want to leave gifts to beloved young children too. Unfortunately, good intentions and poor planning often have unintended consequences. Don’t make these common, expensive mistakes. Instead, here’s how to both protect and provide for the children you love. Proper estate planning for minor children must be a priority for all young parents who have minor children. Parents with no will, or just a simple will, cause undue hardship for their family and especially their minor children. This post explains why special estate planning for minor children is necessary.
Common Mistake: Don’t Use a Simple Will to Leave Assets to Minor Children
Many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens:
- When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents in their wills. If you don’t have a will, your relatives may end up spending tens of thousands of dollars fighting over who is the most appropriate guardian for your minor children.
- But the court, not the guardian, will control the inheritance until the child reaches legal age (which is 18 in Florida).
- At that time, the child will receive the entire inheritance, without restrictions and without any options to outright distribution.
Most parents would prefer that their children inherit at a later age, perhaps with some safeguards built in to protect the child, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum. We can provide many examples over our 30+ years of experience where teenagers who inherit assets from a deceased parent, through the use of beneficiary designations and payable on death (POD) designations, and whose life is essentially destroyed by the receipt of substantial sums of money upon reaching their 18th birthday. This is perhaps the worst Common Mistake made by parents of young children. One, who was 14 when his father died leaving him almost $1.5 million dollars, went from a straight A student to being banned from the local school system, because he said he didn’t have to worry about school because, by his account, he was a “millionaire.” After spending 60 days in a drug rehab center, at cost of $60,000, he received his million dollars at age 18 – in a lump sum to do with as he pleased. He never graduated from high school. For most parents, that’s not the result they want, but the parents are the only ones who could have changed the outcome by establishing protective trusts for him in their wills or trusts – if they had them. In this case, the father, who was divorced from the mother, used beneficiary designations rather than a will or trust to control his wealth. He lost control and he ultimately lost his son. The child’s mother was helpless to change things because the beneficiary designations to a minor child required the guardianship of the property of the minor child, and Florida law dictated that the remaining funds be turned over to the child on his 18th birthday. Proper estate planning for minor children would have avoided this problem
Common Mistake: Avoid Court Guardianship
A court guardianship for a minor child is very similar to one for an incompetent adult.
- Things move slowly and can become very expensive.
- Every expense must be documented, audited, and approved by the court, and an attorney will need to represent the child, in addition to the attorney representing the guardian. Both attorneys get paid from the minor child’s assets that you have left them.
All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs. Proper estate planning for minor children can avoid this type of problem for your children.
Correct Action: To Protect the Child and the Assets, Use a Protective Testamentary Trust
Instead of using a simple will, proper estate planning for minor children provides a better option which is to set up a children’s trust in a will:
- This would let you name someone to manage the inheritance instead of the court.
- You can also decide when the children will inherit.
- But this kind of trust, set up through your will, cannot be funded until the will has been probated, and that can take precious time and could reduce the assets that otherwise could be available for your children.
- If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.
- And, anything that goes through probate, as these assets would, is visible the public which means predators, including unscrupulous family members and nosey neighbors, know what your child inherited. But, even probate of a will with a trust for the children is better than a simple will, or using beneficiary designations and payable on death designations.
The best option for your children or grandchildren is a revocable living trust. This is the preferred option for many parents and grandparents:
- The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you establish in the will that you want them to inherit, and your directions for providing financial support for your children will be followed–even if you become incapacitated.
- Each child’s needs and circumstances – even special needs – can be accommodated, just as you would do.
- And assets that remain in the trust are protected from the courts, irresponsible spending, and creditors (even divorce proceedings) just like you would want.
For many folks, the absolute best solution is to keep the assets in trust for their children’s or grandchildren’s lifetime or until assets get spent down. Assets that are trust protected are there for your child when there is a need or appropriate incentive that you decide is appropriate for your children, but the assets in the trust can’t be taken from them by their creditors, or divorcing spouses, or a temporary or permanent incapacity. As your children grow up, they will need the continued protections you can provide through a revocable living trust. With a revocable living trust, you control the trust through the directions that you provide to the trustee that you choose. Proper estate planning for minor children will create a dramatic, life altering experience, compared to haphazard or no planning. Your minor children deserve to have proper estate planning.
We can help you avoid the pitfalls associated with no will, or just a simple will, when planning your estate around minor children. In short, we can help ensure you engage in proper estate planning for your minor children.