Published by Beth Schanou
A current estate plan is important to have in place for senior citizens. This planning is just as vital for parents of minor children for two important reasons: naming a guardian and arranging for the management of the children’s inheritance.
A guardian is the person who has legal responsibility for a minor child in lieu of the parents. Guardians are appointed for minor children when the parents are deceased or if they are unable to care for them. Verbal communication to family and friends of your desired guardian is not sufficient. The appointment should be written in a legally binding document…the Last Will and Testament. This is especially important if a friend is the choice for guardian because the court will favor family in the absence of a documented selection. So long as the appointment is feasible, the court will generally follow the wishes stated in a Will. Without a written appointment, the court will decide who will care for minor children.
In conjunction with naming a guardian, the estate plan should provide for management of the inheritance received by minor children. Naming minor children individually on a beneficiary designation form or through a Will or Trust is a mistake because minors are legally incapable of filing a valid claim for a death benefit or managing their own property.
If a minor child inherits, court-supervised proceedings are necessary to supervise the management of the child’s inheritance. The requirements of court supervision and formal accountings add expense and inconvenience and the costs reduce the total gift to the child. Another drawback is once the minor reaches the age of majority (18 or 21 in most states) the child receives the entire inheritance.
The solution is creating a child’s trust within a Will or using a revocable living trust to name a trustee to manage the property and specify when the property should be distributed to the child. This adds flexibility to accommodate each child’s needs and circumstances. Additionally, while held in trust, the assets remain protected from irresponsible spending and creditors.
It is just as important to plan for what will happen with your finances when you are no longer around, as it is to plan for them when you are.