This post is Part Three in a four-part series discussing estate planning for Millennials. You can find links to the other posts in the series here.
When you have a kid, everything else usually takes a back seat. There's often no time for fun things like hobbies or other activities and definitely no time for un-fun things estate planning.
But what would happen to your child if you and your spouse suddenly died or became incapacitated? Who will take care of your child's medical needs and daily care? Who will manage your assets until your child reaches adulthood?
A well-crafted estate plan can address these issues and more, and ensure that your kids are taken care of after you are gone.
Do I need an estate plan?
We have talked a lot about the importance of having an estate plan. That doesn't change when you have kids. In fact, having children makes having an estate plan even more important.
There are generally two sides of estate planning: What happens to your STUFF when you die and who takes care of your SELF when you become incapacitated. But when kids enter the equation, you need to consider a third perspective: Who takes care of your CHILDREN when you can no longer do so.
(What is the definition of estate planning? Check out this blog post for the answer.)
Contemplating your death can be even more depressing than watching Mufasa die in The Lion King. Absolute tears. However, just like you have to watch in terror as Mufasa gets trampled to death by a horde of wildebeests in order to experience the magic of "Can You Feel the Love Tonight", you need to consider what happens after your death in order to ensure your children are provided for.
So what would happen to your CHILDREN if you died tomorrow? Say you have a parent or other relative who you want to take care of your kids. That relative would need to obtain guardianship over — or adopt — your child(ren) through a court proceeding before they would have legal authority to manage their care and provide for their well-being.
What about your assets, your STUFF? Your property would need to be distributed through a properly funded trust, probate, or other probate-avoidance devices. Whatever the case, if your children are minors, they will not be able to access those assets until they reach age 18. In the meantime, a guardian, conservator, or trustee would manage that property for your children.
(Learn about 5 Ways to Avoid Probate.)
Taking care of your children and taking care of your stuff all requires time, money, and court proceedings. There are also many ways things could go wrong.
Are there any relatives you do NOT want to take care of your kids? Is there anyone you do NOT want to be in charge of your assets? Do you want to leave certain funds for your child's education? Do you want to ensure your child is able to stay in the same city or school district after your death? Are there any other special instructions you want to leave behind?
Without an estate plan, all of these issues are left up to chance.
How can I provide for my kids in my estate plan?
Providing for your children is one of the most important aspects of estate planning. So how can you use your estate plan to provide for your children's care? How can you ensure that your estate will be distributed responsibly and for your children's benefit?
Nominate a guardian for your children.
When it comes to your children's care, the options are fairly straightforward. Although you cannot avoid the need for a guardianship or adoption in the event of your death or incapacity, you can nominate a trusted relative or friend to serve as guardian if it ever becomes necessary.
This nomination can be included in your Last Will and Testament, in a Living Trust, or as a separate document. If the guardian is otherwise qualified to serve, this nomination will help ensure the court appoints the right person to take care of your kids.
(See our explanation about the main differences between a Will and a Trust.)
Along with a Nomination of Guardian, you may also wish to leave instructions for the eventual guardian. What values do you want them to instill in your children? What concerns do you have about their care? What information or records does the guardian need to know or have in order to properly care for your kids?
Choosing a guardian is an incredibly important decision. So take the time not only to consider who you want to take care of your kids but also what they will need to know.
Appoint a trustee or conservator to manage your kids' assets.
Just because you nominate a guardian to manage your child's care does not mean that you have provided for the care of your property. When it comes to assets, there are two main options to provide for minor children in your estate plan: a Living Trust or a custodial account.
A Living Trust is more flexible than a custodial account. For example, a trust can last as long as you want; a custodial account only lasts until the child reaches a certain age, which varies depending on your state laws.
With a trust, you appoint a trustee who has the discretion to distribute funds to your child in a way that best provides for their care. Would you want your child getting $100,000 right when they turn 18? Or would you want to spread out the distributions to give them time to appreciate that wealth and to make more responsible decisions?
You can also use a trust to specify certain events (e.g., going to college, getting married, buying a house) at which you want the trustee to distribute funds to your child. Our clients often provide that their children are entitled to one-third of their inheritance at 25, one-third at 30, and the remainder at 35. Or you can give your children the incentive to work hard by tying their distributions to earned income on their W-2 statement.
(Read more about "incentive trusts" here.)
On the other hand, a custodial account is a type of financial account where you designate a custodian (which is somewhat similar to a guardian) to manage particular assets for your children's benefit. This type of account is not as quite flexible as a Living Trust, but the custodian essentially serves the same purpose as a trustee.
What else should I include in my estate plan?
Aside from a Living Trust, Last Will and Testament, Durable Power of Attorney, and Advance Directive for Health Care, we recommend leaving a "letter of instruction" to tell your representatives everything they need to know to manage your estate.
To make things easy on you, we put together a blog post detailing some things you should include in your letter of instruction. Consider writing different letters for your trustee or personal representative and your designated guardian or conservator for your children, since different information may be relevant to different individuals.
Lastly — and this is especially important for Millennials — we highly recommend you create a digital estate plan detailing how you want your online assets disposed of and the information your representatives will need to access those accounts. Depending on the laws in your state, you may need to appoint a separate "digital executor" in your estate plan for this purpose.
(And don't forget to conduct a "fire drill" to review your estate plan with your family.)
Don't wait to protect your children.
You do everything you can to protect your children. But failing to have an estate plan can leave your children vulnerable and cause a number of other problems for your family and your estate. Contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment to determine what estate plan best fits your goals and family circumstances.
Additionally, download our FREE Estate Planning Guide, packed with 70 pages of information about estate planning, probate, and much, much more, by clicking the button below.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]