Estate Planning when you have Young Children

Do you have minor children or plan to have children in the future? If your answer is “Yes”, then you need to have an estate plan. More specifically, you need to have a Last Will and Testament because that is the only estate planning document in which you can name a legal guardian for your minor children. If something happens to you and you do not have Will that names a guardian for your children, the Court will appoint one – do you want to leave that to chance? And, having an estate plan allows you to control how and when your hard-earned assets will be transferred to your children – and who will be in control of those assets until you children can receive them.

The Guardian:

In choosing a legal guardian for your minor children, you should consider the potential guardian’s values and lifestyle. To be honest, it is often easier to rule out potential guardians than to pick the perfect person to act in that role. Some things you may want to thoughtfully consider:

Does the potential guardian travel a lot? Work a lot of hours? Live in a home large enough to house your children? Is the guardian religious? Not religious? Focused on a healthy lifestyle? A good person to speak with about difficult situations? Open to new ideas? Energetic and healthy enough himself/herself to take on the responsibility of caring for your child? How will a child fit into his/her lifestyle? Choosing a guardian for your child or children is not a decision to be made lightly, but it is an important one because it gives you the ability to choose a person whose answers to these and other questions will closely match the answers you would give if asked the same questions.

The Trustee:

Then of course comes the question of how you leave your assets to your children and for their care. Your assets cannot legally be given to your children outright. And the guardian is not in charge of the assets automatically either (and in some cases, you wouldn’t want that anyway. Perhaps the guardian you choose is an amazingly caring person, but not the best with managing finances.)

To pass your assets to your children, people most commonly transfer the assets in trust or direct that the assets be placed in a Uniform Transfers to Minors Act account.

How would a trust for my children work?

Every child’s needs are different based primarily on their maturity level and capabilities, and the trust provisions can be tailored to address those factors. For example, you can choose to have trust distributions to or for the benefit of a child on a monthly basis or for specific purposes. As an alternative, you can choose to have percentages of the trust funds be distributed at different ages, i.e. the first third at age 21, the second third at age 25, and the final third at age 30. In addition, you can also choose to simply leave the discretion as to distributions to your trustee to make as they see fit. What type of trust structure is best can be determined by consulting with an estate planning professional.

Who would the trustee be and what do they do?

The trustee would be someone you name in your Will to manage the trust you leave behind for your children. This does not necessarily have to be the same person you choose as guardian. The trustee will work closely with the guardian, so it is ideal if the the guardian and trustee (if they are different people) can forge a good, communicative relationship. People generally choose a close family member or friend to act as trustee. You can also choose an institutional trustee, such as a trust department at a local bank. The trustee has the obligation to responsibly manage and invest the trust assets. He or she must also make distributions to or for the benefit of your children pursuant to the terms of the trust.

What is a Uniform Transfers to Minors Act account?

A Uniform Transfers to Minors Act account – or UTMA account for short – is an account that can be set up at a local bank with a named custodian for the benefit of a child. This is a useful way to leave money to a young child, without the necessity of setting up a trust. The custodian, similar to a trustee of a trust, has the obligation of managing the account funds and may make distributions from the account to the child or for the child’s benefit. When providing for an UTMA account to be set up in your Will, you can direct that the account be paid out to the child either at the age of 18 or 21. An UTMA account is a useful alternative to a trust, if the amount of money flowing to your child is a relatively smaller amount, i.e. $30,000.00 or less.

How do I ensure there are sufficient funds to take care of my children?

Obtaining term life insurance is an excellent way to ensure there are sufficient funds to take care of your children, if you pass away when they are young. The premiums are generally very affordable for appropriate coverage, if you purchase the policies when both you and your children are young. You can then make your spouse the primary beneficiary if you pass away, and you can make your estate the secondary beneficiary. If your spouse predeceases you, then the money will flow into your estate and fund the trusts or UTMA accounts you established in your Will.

What other issues are relevant to estate planning with young children?

There are a variety of other issues to consider when estate planning for parents with young children. For example, if a child is disabled, there may be a need to establish a guardianship by the parents of that child which will continue into the child’s adulthood. There may also be a need to establish a special needs trust, which will provide support for the child without jeopardizing their eligibility for governmental benefits. These issues and others can all be addressed with an experienced estate planning professional, in order to determine what options are best for your family.

Every family and every situation is unique. There is no “one size fits all” solution for families. Seward & Seward has vast experience helping clients tailor an estate plan to serve their individual needs. We would be pleased to discuss your plan with you – no matter the size of your estate or what stage of life you are in.

Seward & Seward

516-766-1415

Catie@SewardsLaw.com