Estate Planning With Children
5 simple but effective ways to protect
your children in the event of your death
If you already have life insurance it is often advisable not to name the children as the primary or secondary beneficiaries. As discussed above in Create a trust for your children it is normally advisable to have the life insurance proceeds paid to a trust and not to the children to avoid the children receiving the money at age 18.
- Name a guardian: Who will raise your children if you and your spouse (or the non-spouse other parent) are deceased? If you don’t have a will the court will choose someone. This court appointed guardian may be different than whom you would have selected and in fact may be the last person you would have selected to raise your children. In a will you can specify the person you wish to raise your children. This is such an important issue that it justifies a will even without considering any of the other numerous benefits.
- Create a trust for your children: Few parents wish for their children to receive significant amounts of cash or property at age 18. Unfortunately, without proper planning, this is exactly what happens when children receive an inheritance. If, for example, the child wants to buy a sports car instead of going to college, there is nothing you can do about it.
A will can specify that the child’s inheritance be placed in a family trust with the trust income and principal to be used for general support of the child and to pay the child’s college expenses. You can also specify that trust assets may be used for other specified purposes such as to purchase a home or start a business. Then, when the child reaches a specified age, 25 for example, the trust is terminated and the child receives the remaining trust assets at a time when the child is more financially capable.
In addition, if a trust is not created for your children and a child is under the age of 18, the court will likely require that a conservatorship be created in order to manage the child’s assets while he/she is a minor. Conservatorships can be very costly, as the child’s guardian normally hires an attorney in order to comply with the numerous court ordered requirements. If your child is 16 at the time of your death the total conservatorship costs may be only $3,500 while if your child is 5 at the time of your death the total conservatorship costs may exceed $10,000. The bottom line is that there will be fewer funds available for your child's benefit.
- Have a will: You may have children who have never thought a bad thought about the other or you may have children who fight like cats and dogs. Irregardless, in my experience, serious and permanent sibling rivalries can arise if their parents do not have a will that clearly specifies who is to receive what or at least a will that specifies a third party, such as a trusted family friend, who can assist in the division of the estate. I find that when parents have a will or other estate planning document such as a living trust, that family discord is minimized.
- Lifetime transfers:Depending upon your financial needs, transferring assets either outright or in trust during your lifetime may be advisable. Benefits of lifetime transfers may include reduced estate taxes, reduced income taxes, and an excellent college savings vehicle.
- Life Insurance: If you have minor children and you don't have life insurance I suggest that you consult with an experienced life insurance agent or financial planner. I can provide a referral if you wish. The problems I see are when parents pass away and there are simply not enough financial resources to raise the children. I am not suggesting that you need a lot of life insurance, but even a $100,000 policy would make a significant difference to your child’s future. Also, if you wish to pay for a collage education for your child, life insurance may be even necessary after they reach 18. A qualified life insurance agent should be able to assist you.
Also, if your estate is close to or exceeds the state or federal exemption amount I strongly advise you to consider implementing a life insurance trust in order to avoid estate taxes. Please see Federal Estate Tax Basic-Remove life insurance proceeds from your estate if you wish to learn more.