Estate Planning To Protect Young Children

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Amanda Shaw
Amanda Shaw

Now that the federal estate tax exemption is million for 2011 and .12 million for 2012, who needs to bother with estate planning?  Young people with small children are some of the first people who come to mind.  While many of us are quite happy with the way our property would be distributed according to the laws of intestacy—first to our spouses if they survive us, then to our children, then to our parents, then to our siblings, and so on—everything changes when young children are involved.

Estate planning is necessary even for people who don’t have enough money or property to worry about having to pay estate taxes.  Even more important than avoiding the payment of unnecessary taxes is making sure that children will be well-taken care of.  Parents understandably want to make sure that there is enough money to provide for the health, education, maintenance, and support of their children so that an untimely death will cause as little disruption as possible in their children’s lives.  But money is not the only concern: Parents also need to make sure that a reliable person they trust will be responsible for raising their children.

Fairly simple estate planning can meet both of these needs.  Of course, if the other parent or another joint legal guardian survives the parent who dies, that person automatically will get physical custody of the children.  In the case of a traditional married couple, the other parent also would receive the proceeds of the estate to provide for the children.

Estate planning is critical, however, for single or remarried parents and in the event that both parents or legal guardians die at the same time.  A simple will can create a trust to provide for the financial needs of children, while also nominating a guardian to assume physical custody of the children. While a parent’s nomination of a guardian for minor children is not binding on the court that ultimately will decide who will be responsible for raising the children, courts give great consideration to parents’ wishes.  No one wants to subject his or her children to the spectacle of competing grandmothers fighting in court over who gets the kids.  A simple will can help avoid this.  A simple will also can excuse the guardian from having to post a bond and from having to file annual reports with the court, requirements that the law otherwise imposes by default.

In addition to the issue of who will be responsible for raising the children, parents need to consider how their children will inherit financial assets.  For parents of young children, the largest asset that will pass to those children often is life insurance.  But life insurance can be substantial.  In the absence of a will with trust provisions, the parents’ financial assets, including life insurance if the children are beneficiaries or the policy is payable to the parent’s estate, will pass to their children pursuant to the Uniform Transfers to Minors Act.  According to the provisions of the statute, a custodian appointed by the court will manage all financial assets until the child reaches age eighteen.  Once the child reaches age eighteen, however, the custodian must transfer all assets to the child.  Even the most mature 18-year-old is not responsible enough to handle inheriting valuable property or a large chunk of money.  Executing a will with a trust provision can avoid this situation, while still ensuring that the children’s needs are met.  A trust can mandate that financial assets be transferred to children when they reach a more mature age or can “sprinkle” distribution of the assets over a period of time.

It’s hard for any of us to face the prospect of an untimely death.  But we can’t let our own squeamishness put our children at risk.  At the very least, all parents should have an estate plan that nominates a guardian to raise their children and controls when and how their children inherit financial assets.  An experienced attorney can prepare an estate plan to address both of these concerns and help make the loss of a parent a little less devastating.

Amanda Shaw is an attorney with Glenn Feldmann Darby & Goodlatte – visit www.gfdg.com to learn more.