No one likes to think about death much less plan for it. Many surveys indicate this is one of the biggest factors in not doing estate planning. However, doing estate planning is an act of love. This is especially true when there are young children or grandchildren involved.
There are two primary concerns regarding minor children and estate planning. First, who is going to take care of the children? The person who cares for the personal needs of the children is called the guardian. Second, who will take care of the financial needs of the children? This may or may not be the same person (or institution) as the guardian of the children. The person responsible for the children’s financial matters may be a court appointed conservator or if estate planning was done prior to death, it could be a trustee of a trust established for the children’s benefit.
Significantly, children under age eighteen cannot legally “own” property in their individual capacity. Therefore, in order to have life insurance proceeds or any other assets of an estate distributed to a child under age 18, a conservator must be appointed by the court. The legal proceedings required to get a conservator appointed can be at best an additional expense and inconvenience. At its worst, a conservatorship proceeding can be a legal fight between family members about who is to manage the assets of the children. Although these scenarios may be unappealing, the worst part about failing to plan for minor children may be what happens when they ultimately receive their inheritance.
A conservatorship ends when the child reaches age 18 unless special circumstance exist and the court allows the conservatorship to continue until age 21. The result is that at age 18 (or at most 21) the child now has complete control over the assets. While parents or grandparents may envision their life insurance or other assets of the estate being used for their children’s or grandchildren’s education, church service, or other purposes, children at age 18 or 21 may have other plans.
Given the concerns related to expense, court proceedings and ultimate, uncontrolled distributions at age 18 (or 21 in special circumstances), parents and grandparents should consider the use of a trust when minor children are beneficiaries. A trust has many advantages. First, assets can be distributed to the trustee of the trust for the benefit of the minor child. This can often occur without the need to burden the courts. The trustee would then manage the assets as specified in the trust document. Parents can specify that proceeds within the trust are always available for the children’s health, education, maintenance and support. Additionally, parents can specify that the proceeds will not be distributed outright to the children until the children reach a particular age or will be distributed in incremental stages at various ages. In short, through the use of a trust, the parents have the opportunity to provide as much instruction as they want with respect to the inheritance they leave for their children or grandchildren.
In conclusion, estate planning is very important when minor children or grandchildren are involved. If you stop and think about it, you may find it ironic that many of us provide more instruction to the babysitter about how to care for our loved ones for a few hours than we provide for those we leave behind at death.