Estate Planning for Minor Children
For many people, the motivation for creating an estate plan is the birth of a child. Becoming a parent and becoming responsible for another life tends to focus your attention on planning for the future! The hope, of course, is that you will be around to see your children grow up, and their children as well. But estate planning isn’t based on what we hope will happen—it’s for what we fear could happen.
Most parents of young children ask themselves the question, “What will happen to my child if anything happens to me?” Estate planning for minor children allows you to have an answer in place that will give you peace of mind.
While parents of young children often call an attorney looking for a will, when you’re thinking of estate planning for children, you need more than a last will and testament to truly protect them. Let’s talk about what you need to know to protect your young family
Planning for Guardianship
Guardianship is often the first thing that comes to mind when you think of estate planning and children. If you were suddenly no longer available to care for your children, who would do it? Ideally, their other parent would be there to take care of them. But if you are a single parent, or if you and your child’s other parent were to die simultaneously, you must have a plan for guardianship in place.
The chances of your minor child needing a guardian are low. That said, knowing that you have chosen a guardian will help you sleep at night. You can name a guardian for your child in your last will and testament. However, they will not officially become your child’s guardian until appointed by a court.
If you do not name a guardian for your child in your will, the probate court will choose one, most likely a close relative. There exists the possibility that the guardian the court chooses would not be someone you would have chosen. There’s also the possibility that multiple family members could end up fighting in court about who should serve as guardian. To avoid these outcomes, you must create a will that names a guardian—and, of course, make sure your chosen guardian would be willing to serve if called upon.
Providing for Your Child and Protecting Their Assets
In addition to making sure there is a trusted adult to care for your child, you also need to plan for their financial security. Even if you have significant assets, leaving them to your child in a will is not the best option.
If a minor child inherits assets outright in Michigan, a conservator must be appointed to manage those assets until the child reaches legal adulthood at 18. At that time, the child is legally entitled to their entire inheritance.
If the idea of someone you didn’t choose managing your child’s inheritance makes you uneasy, the prospect of your child having unfettered access to their entire inheritance as a teenager probably feels even worse. Fortunately, there’s a simple answer: creating a revocable living trust.
With a living trust, you can continue to use and manage all the assets in the trust during your lifetime, just as if they were still in your own name. Upon your death, a successor trustee that you have chosen continues to manage and distribute trust assets for the benefit of your named beneficiaries.
The trustee can make sure your child has enough assets to provide for their needs and pay for their education while also protecting their assets until they are mature enough to manage those assets themselves. You can also make the trust the beneficiary of any life insurance or retirement plans you have, so that those assets will go directly into the trust upon your death and be protected for your child.
In addition to the protection a trust offers, the mechanics are much more seamless and private than going through probate. Rather than needing a court process to appoint a conservator, the successor trustee named in a trust can simply take over managing the trust upon your death.
Protecting Minor Children With Special Needs
If you have a child with special needs, planning is even more important. Depending on your child’s circumstances, they may need continuing care and support into adulthood. They may also need government benefits for health care and housing. Unfortunately, many government benefits are means-tested, meaning that if a beneficiary has too much income or too many assets, they lose eligibility for benefits.
Placing your child’s inheritance in a revocable living trust may not be enough to allow them to qualify for benefits. Instead, a special needs trust, also called a “supplemental needs trust,” may be required. These trusts are designed to ensure that beneficiaries have access to funds, but do not lose eligibility for government benefits.
There are different types of supplemental needs trusts. “First party” trusts are established with the child’s own assets. “Third party” trusts are established with funds from another party, such as a parent or grandparents.
The best time to begin estate planning for your minor child is yesterday. The second best time is today. Even if your estate plan sits in a drawer unused, just knowing it’s there will give you peace of mind—and allow you to focus on enjoying time with your child.
To learn more about how to set up a trust for a child, estate planning for special needs children, and more, please contact Suzanne R. Fanning, PLLC to schedule a consultation.