Every adult can benefit from having at least a rudimentary estate plan in place. If you are the parent of a minor child, however, your need for a comprehensive estate plan increases dramatically. We will explain how your estate plan can be used to protect your minor child.
How Becoming a Parent Changes Everything
Before you became a parent, your primary estate planning goals likely focused on the distribution of your assets in the event of your death. Becoming a parent, however, tends to change your priorities and goals. Now your primary goal is to protect an provide for your child. As a result, you will need to make changes to your estate plan.
Is Your Will Enough?
For some people, a Last Will and Testament serves as the foundation of their estate plan. Sometimes, it serves as the entire plan given that it can distribute your entire estate. As the parent of a minor child though, you will find that a Will is no longer enough. One reason for this is that your minor children cannot legally inherit directly from your estate. Because of this, assets gifted to a minor in a Will must be managed by an adult until the child reaches the age of majority. Consequently, if you continue to depend on your Will to distribute your child’s inheritance you lose the ability to decide who the adult will be that guards your child’s inheritance. For many parents, the solution is to create a trust to protect their child’s inheritance.
Nominating a Guardian
Your Will continues to play an important role in protecting your minor child though because it provides you with the only official opportunity you will have to nominate a Guardian for your child. A Guardian is the person you would want to take care of your children in the event something happened to you and a court was forced to appoint someone. While a judge will make the ultimate decision, most will abide by your wishes as reflected by your nomination of a Guardian in your Will.
How Can a Trust Help Protect My Child?
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee, who is appointed by the Settlor, holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime.
As the parent of a minor child, a trust helps to protect your child in several ways. As the Settlor of the trust you appoint the Trustee, and any successor Trustees, allowing you to decide who will protect and manage the inheritance you leave your children. In addition, a trust lets you stagger the inheritance you leave your children instead of giving them a lump sum. You can also decide when they receive those distributions and how much will be distributed each time. No matter how mature a child may be, handing an 18 year old a large lump sum inheritance is rarely a wise idea. Instead, you may wish to direct the trust to distribute that inheritance in increasingly valuable disbursements over the course of several years to allow your child an opportunity to learn to handle his/her finances. Finally, unlike a Will, a trust can also help you plan for the possibility of your own incapacity. Whereas the terms of a Will only apply upon the death of the Testator, a trust can cover incapacity as well. This allows you to make certain that someone of your choosing takes over control of your assets in the event of your incapacity instead of leaving it up to a judge.
Please download our FREE estate planning checklist. If you have additional questions or concerns about how you can protect your minor child in your estate plan, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.