Making sure your minor children are protected

When you are a parent of minor children, you need a few extra things in your estate plan to make sure your kids are taken care of no matter what happens. If you do not adequately plan for your children through a thoughtful estate plan, decisions about their future will be left up to a court process that may not result in your wishes being carried out.

One of the most important steps parents of minors need to take is designating a guardian for their children if both parents should die before the children reach the age of 18. Parents can designate in their wills who they wish to serve as the guardian of their children and both should name the same person or persons in each of their wills. When thinking about suitable guardians, you want to choose someone who can provide a stable, safe, and caring environment for your children, as well as some continuity in their lives. It is also very important before you name someone as guardian of your children in your will to discuss it with them first to make sure they are up for the responsibility. It is also a good idea to have a backup guardian designated in case the guardian is unable to carry out that role.

In addition to designating a guardian of the children, parents need to have a plan in place for how their children will receive any inheritance. Minors do not have the legal capacity to manage money or other assets, so they will need an adult or institution to manage any inheritance for them.

If a parent anticipates leaving a significant amount of money to a child ($100,000 or more), then a trust may be the best vehicle to do so. A trust is a receptacle that you create with a legal document to hold assets that will be managed by a trustee for the benefit of the child or children. The trustee can either be a responsible family member or friend or an institution that offers trust management services.

Parents can include a testamentary trust in their will or revocable living trust and designate the trustee. This testamentary trust becomes effective upon the death of the parents. One of the benefits of using a trust to manage a minor’s inheritance is that you can lay out the terms of how distributions will be made. For example, you can provide that distributions should be made to pay for health, education, maintenance, and support. You can also designate the age at which the trust will terminate and an outright distribution of remaining funds will be made to the child. For example, instead of allowing the entire inheritance to be distributed outright to the child when they reach the age of majority (18 in DC), you can have the distributions occur at set intervals after the child is over 18 (for example at age 22, 25, and 30) or even over the course of the child’s life.

If a parent does not anticipate leaving a large amount of money to a minor, another option is to leave money to a minor through a Uniform Transfers to Minors Act (UTMA) account. Once again, parents can provide for this in their wills or revocable living trusts. Parents can also designate who they wish the custodian to be for their child’s account. One difference between using a trust and an UTMA account is that there is less flexibility in when the money would be distributed to the minor. In DC, the remaining funds in an UTMA account are to be distributed outright to the beneficiary once they reach the age of 18 or 21, whereas you have more control over the age of distribution with a trust. However, administering an UTMA account may be less costly than the management of a trust.

Once planning provisions have been put in place for children’s inheritance, either through a trust or UTMA account, another important step to take is to make sure any minor beneficiary designations for life insurance, retirement, or other accounts have the correct language so the proceeds go to either the trust or the UTMA account. An estate planning lawyer and the institution with which the account is held can walk you through the correct language to use.

While it can feel overwhelming to think through some of these issues, having a plan in place should reassure you that your wishes would be carried out for your children if something were to happen to you. If you want to discuss setting up a plan to take care of your family, book a consultation or send me an email. I would love to help you create some peace of mind with a comprehensive plan.