One part of the financial planning process that is very important is estate planning. Though not necessarily fun to think about an untimely demise, it’s better to do it now if you care about your loved ones than leave it for whoever ends up having to deal with it. Just ask anyone who’s been saddled with administering a suddenly-deceased relative’s estate who didn’t have a plan in place.
Step one in the estate planning process when a client has young children is to make sure they have a will that creates a testamentary trust. Why? If you die intestate (without a will), your assets will be dispersed following intestacy laws.
Minors (individuals under the age of 18) are not considered to have legal capacity, which means they cannot directly inherit your assets. This means that the IRA or life insurance policy for which you named them as beneficiaries can’t go directly to them. The assets will have to go to a conservatorship that is created by the court and the court will designate someone (a conservator) to manage and oversee those assets on the minor’s behalf.
But the biggest consequence of dying without a will is that you as a parent haven’t named guardians to take care of your children, leaving that determination up to a court to decide. Without direction from you, court proceedings could determine the kids go to your estranged parents-in-law, who not only wind up raising your children, but also have access to all your assets in order to care for your kids. With minimal oversight, how do you know they really used that money for Johnny’s braces?
So, have we scared you enough yet to get your estate planning documents in order?!?
Drafting a will that establishes a testamentary trust will give you the ability to prevent this scenario from occurring. A testamentary trust is just a trust that is established at your death, through a will (as opposed to a living trust, which is living at the same time you are). By appointing trustees, people to control the assets and make financial decisions for the children, you can assure that family, friends, or third-party advisors that you trust will take care of your assets.
The will should also name guardians for your kids. Don’t worry, kids don’t have to be specifically named if you’re not done building a family – it can simply say something like “for all current and future children.” Who you pick as guardians can be the same or different from who you pick as trustees. The important part is that you are determining who raises and take care of your children, not leaving it up for someone else to decide.
Please contact us if you’d like to review your current estate plan or need to create one. It’s not too late!