There is no better time to think about the future as far as estate planning is concerned than when your children are small. Having kids is a big part of what makes life meaningful, but it adds a tremendous amount of responsibility to your life, as well. That means you need to take some time away from the hustle and bustle of raising your kids to think clearly about what would happen if something were to happen to you while your children were under the age of 18. I realize that this is not a pleasant thought but It’s important to do, nonetheless.
Passing away while you have young children is the last thing that many of us think about on a day-to-day basis, but the possibility exists. Becoming disabled due to an injury, accident, or something similar can happen as well. Being able to help ensure that your children are cared for as best as possible is critical to being a responsible parent. Failing to do so can be disastrous for your children. One of the most important things that you can do for your family is to think about what the plan would be if you pass away while they are young.
No estate plan? Here is what can happen to your family
If you are married and die without a will then your spouse would continue to care for your children. There is a possibility that you and your spouse pass away at the same time, however. In that case, if neither of you has the will then you would never have named a guardian for your children who you would like to be able to care for the kids. Without a will stating who you would like to care for your children in that instance, your family members would need to come forward to ask a court to be appointed as guardian. Depending upon the circumstances of your family this could become an unpleasant situation with multiple family members angling to become the guardian. Even a well-meaning fight over guardianship of your children can be difficult for your children to take immediately after losing their parents.
Even after a guardian of your children is named by a court you still need to consider how your children are going to be cared for after you and your spouse are away. This is especially important to consider when your children are minors. Without an estate plan in place, a Court would need to appoint someone to oversee and allocate money that your children have inherited until they reach 18. Once your kids turn 18, they would have the legal right to do with that money whatever they want. Think about that for a moment and consider what you would have done with the money at age 18. You may want them to be able to use some of the money at that point no matter if they are in college or starting in the workforce, but to have access to thousands of dollars immediately at 18 could be disastrous depending on how your child thinks about money and spending.
However, if you draft a will, you can include a trust within the will that spells out specifically how you would like any inherited money to be handled on behalf of your children. A trustee would hold the money in trust until certain life milestones were reached. For example, you could spell out in the will that you would like a certain amount of money to be released on their 16th birthday to purchase a vehicle, on their 18th birthday to pay for college, and so forth. You can even make it so not all the money is given to them at 18 or even 21. I have seen parents include provisions as to how the money should be divided up over years with the final installment being made when their children are 25 or even older. The point is that you don't get to have this level of autonomy over the situation unless you think ahead and plan for unexpected, end-of-life events.
What should an estate plan include for you when you have minor children?
There are many moving pieces in place when you are engaging in estate planning, no matter your age or the age of your children. With that said, there are basic provisions and elements of an estate plan that you should bear in mind to provide yourself with some degree of peace of mind. That’s not to say that you will be able to eliminate any worry or stress that you may have regarding estate planning when we think that the following elements are key to providing for the long-term success of your children were you and your spouse to pass away unexpectedly. Those three elements are: a power of attorney for healthcare, a power of attorney for everything else (property/money) and a will with a testamentary or children’s trust included therein.
Who is going to be the executor of your will/estate?
Asking yourself who is going to act as the executor of your will is a key question at this stage of your estate planning. The person who steps up and acts as executor of the will is responsible for distributing assets to beneficiaries as well as putting your estate through probate if that is necessary. Probate is a legal process where your estate administration, debt payments, and asset distribution is overseen by a probate court judge. While this can be necessary for some situations regardless of whether you have a will, the likelihood that it becomes necessary is reduced dramatically if you do have a will.
If you are married, then odds are you will appoint your spouse to act as the executor of your estate although it is not required. You may think about how well your spouse would act as executor in the wake of your passing. It is difficult to talk about and plan for how well a person will be able to fulfill this obligation. It is not easy to consider what can happen to a person's mindset were you to pass away unexpectedly. However, if you do not believe that your spouse would be capable of handling this responsibility or if you simply do not want to put that burden on their shoulders after you pass away then you can certainly name another person executor. You can name one or even two "backup" executors in the will in case the executor cannot fulfill their duty for any reason.
Who is going to act as guardians of your children?
Next, once you have named an executor for your will you should think about the guardianship situation for your children. Someone will need to be appointed to care for your children should the unthinkable happen to you and your spouse. Either you will appoint that person in a will, or a judge will do so as part of a court proceeding that may become contentious and contested depending upon the circumstances of your family. You get to decide what happens in that regard.
A legal guardian of your children will have custody and conservatorship rights to them until they reach the age of 18. You can tell a court who you want to act in this role by naming a guardian in your will. Just as we saw when it came to naming an executor of your will, it is a good idea to have a backup guardian in place just in case your initial selection is not capable of fulfilling their duties or even passes away before you can update your will again. There is only so much you can plan for, I grant you, but it takes little effort to think about contingencies like this and to plan for them accordingly.
Who will act as the trustee for a children's trust?
Having children's trust as part of your will is a great idea, in our opinion. If both you and your spouse pass away while your children are still under the age of 18 then your assets would be divided amongst your children equally or however, you set forth the division to occur in your will. The assets would be placed in trust for your children until they reach the age of 18 or whatever age you choose. The person who acts as trustee of the children's trust would be responsible for managing the money or assets and making decisions about when the contents of the trust should be distributed. The key term in this regard is health, education, maintenance, and support of your children. Without trust in your will, your children would simply inherit this property when they reach the age of 18. A court would set up a trust in the name of your children and would go through the actions described above. However, the judge would not have the same vision or specialized knowledge of your children that you do so it is not advisable to simply allow the judge to do what you were capable of doing yourself while you are still able to.
The trustee of the trust will manage the money or assets contained in the trust until your children reach 18 or whatever age you would like for them to reach to gain access to the money. There are trust companies or banks that can act as trustees if you do not have anyone in your life that you would like to name as a trustee. Before you do this, however, you should look ahead and do some research first. You may find that is it not in your kids’ best interest to name an institutional trustee within your will.
Most of the time, when a person creates a children’s trust in their will, they do so with the idea in mind that the trust will remain in place throughout your children’s formative years, even extending into their 20s and 30s. The fact is that while the law will treat your eighteen-year-old as an adult, it is very unlikely that even the best-raised 18-year-old will have the perspective or experience necessary to make good decisions when it comes to handling what could be large amounts of money well. We’ve all heard people reference how a person’s brain is not fully developed until their mid-twenties. Whether or not this is accurate still speaks to the need to consider that your young-adult child still may not be ready to handle large amounts of property all at once when they turn 18.
Updating the beneficiary information once your trust is set up in a will
Updating the beneficiaries in a testamentary trust is important if you intend to have the most functional document possible. Consider life insurance, bank accounts, investment accounts, and even retirement accounts when planning for your child's trust within a will. All of your assets are either going to be controlled by the will when you die or by what is known as a beneficiary designation. Accounts or assets that are controlled by beneficiary designations do not have to go through probate and will go to the beneficiary whether you have a will or other estate plan in place. Life insurance is probably the most known type of non-probate asset along with retirement savings accounts like Individual Retirement Accounts (IRA).
You should make sure that the trust established on behalf of your children in your will is named as the primary beneficiary of your non-probate assets. Depending upon how complex your estate is this can be a lot for you to bear in mind and keep track of while you engage in estate planning.
How a power of attorney can benefit your children
A durable financial or medical power of attorney may not seem like something that stands to benefit your children but can be beneficial for them in several ways that you may not be considered fully at first. If you become incapacitated you should want to know who in the world is going to take the reins of your financial circumstances and what the responsibilities are that this person or entity holds. If you name a person as your durable power of attorney, then he or she can be granted several different financial powers. A few of those financial powers that could be handed down are filing/paying your taxes, managing investments and retirement accounts, transferring property in a trust that was created previously, and handling transactions with your bank or credit union.
When it comes to financial matters, your durable power of attorney can use the money that you have to cover expenses that your children and family have daily. We oftentimes overlook immediate, yet relevant short-term costs and needs for a family but those will still exist even in the aftermath of your having passed away. Paying bills, the mortgage, rent, or any other consideration like this is just as relevant after you pass away as it was while you were alive.
Naming a person who thinks as you do or that you can trust when you are incapacitated is a key part of being able to sleep better when you are engaging in estate planning. You should be intentional about how you select a potential executor of your estate or the person who has power of attorney over your affairs.
What if you have a child with a special need?
If you have a child who is special needs, then a special needs trust will help you to set aside money that can be used to care for that child. You can leave control of this money to a trustee and put your child in a position where he or she could still be eligible for government benefits if that is something that appeals to you. What you can do is word the trust to indicate that the money inside the trust should be utilized as a supplement to whatever benefits your child is entitled to from the government.
In a special needs trust, the trustee would use funds or assets to purchase goods or services that would enhance the quality of life for your child. Special schooling, equipment, counseling, and other help can be purchased using the funds contained in a special needs trust. You should consider the specific special need of your child and then plan how the funds can be best utilized to care for your child. Like everything else that we have discussed in today's blog post proper planning and intentionality are key to helping your special needs child if you become incapacitated or pass away while they are still young.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning as well as about how your family's circumstances may be impacted by the filing of a probate case.
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