We do a lot of estate plans for young families. (By young families, I mean any family with kids under 18.) Young families don’t need anything complicated, but they do have a couple of key estate planning needs.
First up is naming guardians. Guardians are the people who have parental responsibility for the kids if something happens to their parents. For most parents, this is not necessarily obvious—our clients might have parents on both sides, brothers and sisters on both sides, godparents (maybe more than one set if there are multiple kids), close friends who they talked to about this, and so on. So it’s important to write it down, otherwise the court will choose and it might not be who the parents would have chosen.
Second is creating a trust fund for the kids. This is a very basic testamentary trust, which means the trust language is included in a will, and the trust fund is only formed at the death of the parent. The parents pick a trustee and a termination age for the trust. The trustee is in charge of investing the money and making decisions about distributions. So the guardian (or the kid, as the kid gets older) would come to the trustee and ask for money for child support, a car, college tuition, a wedding, a trip around the world, or whatever else it is they want. The trustee decides whether the request is a good idea or not. If so, they can make the distribution. If not, they keep the money in the trust. When the kid reaches the specified termination age (we recommend 25-30), the trust fund is terminated and the (now) adult is in control of the money. The trustee is usually (but not always) the same person as the guardian. Without this, kids will get funds when they turn 18. An 18 year old with half a million dollars in his pocket is rarely a good thing, except maybe for the local Porsche dealer.
Along with the trust fund goes instructions for beneficiary designations. The parents should name the trust fund—not the kid, or an individual that would be managing the money—as contingent beneficiary. We give instructions on how to do this as part of our plans. A common mistake people make is naming the kids as beneficiary. Even with the right language in a will, if kids are named as beneficiary the money will go directly to the kids, and become theirs at age 18. Again, not a good thing.
The rest of the plan is the same as for everyone else—choose a person to be estate administrator, a person to be power of attorney for finances and a person to be power of attorney for health care.
The good news is, young parents rarely die. So the idea is to have a basic, affordable plan that covers these key needs. The parents make the plan, put it in a lockbox in the basement, and forget about it for 25 years or so. Then, when their kids are adults, they’ll replace it with a new plan, probably with the kids receiving everything directly (rather than in a trust fund) and the kids (rather than parents or siblings) as agents in the various roles. With that plan, they’ll also want to talk about more complex trust planning designed to avoid probate. But young people don’t need any of that—they just need a good basic plan. So, it’s much easier to do than most people think, it’s just a matter of doing it.
Are you a parent ready to get started on a plan? Contact us to set up a no-obligation consultation.