While parents of young children may be somewhat young as well, and do not consider themselves as having a large enough “estate” to require an estate plan, parents of minor children often have the largest concerns. Even a bit of simple estate planning will allow parents of young children to have some control over the care of their children in the event of untimely death, and the peace of mind that their children will be provided for in the proper manner.
The basic estate planning considerations for parents of minor children include:
-Who will take care of your children?
-Who is responsible for managing assets for your children?
-How to financially provide for your children?
Choosing a Guardian for Minor Children
Undoubtedly the biggest concern of parents of young children is who will take care of their children once they are gone. Determining the best individual(s) to act as a guardian for minor children can be difficult. However, for parents of young children, guardianship is the estate planning decision with the most potential impact. Consequently, every parent of minor children should consider who would raise their children if they were unable to do so
If you do not appoint a guardian for your children, in the event of death of both parents, the court will appoint a guardian for your children. The court is required to follow state law with regard to the priority of appointment of a guardian, rather than the specific individual(s) of your choosing. Most people would prefer to decide the guardian of their children themselves, rather than leave it to the court and state law to dictate this important decision. Therefore, it is important to take some time to consider a guardian for your children.
I recommend starting the decision making process with a list of good potential candidates for the role of guardian. This list may include brothers, sisters, aunts, uncles, grandparents or even family friends, basically anyone you can think of that may act as a guardian.
Then, consider the most important factors for you in raising your children. Factors to consider include: philosophies about child rearing; relationship with your children; age and stamina; geographic location; social, political, religious and moral values; financial responsibility; lifestyle and availability and interest in acting as a guardian for your children.
Once you have considered these factors, prioritize the factors that are the most important to you and determine which of the potential guardians possess the most similar qualities.
Open discussion with your family members, including your spouse, children and potential guardians is a key component in this process. Also, understand that circumstances may change as children get older, so it is a good idea to revisit the appointment of a guardian periodically to determine if it still remains a good fit.
After you have determined who would raise your children upon the death of both parents, then it is important to consider who is responsible for managing your estate and assets for the benefit of your children.
Choosing a Trustee for Minor Children
Who to appoint to manage assets for your children requires careful consideration of the nature and value of your assets, as well as your plan of distribution and the relationships between your family members.
Family Members or Friends
You may decide that a relative or close friend, or even your chosen guardian, is the appropriate individual to manage assets for your children. Appointing a family member such as one of your siblings or a close friend can be beneficial because they are familiar with your family dynamics, as well as your assets and your intentions. However, family members or friends often lack experience managing estate assets, financial investments, and methods for ongoing accounting of these assets.
Professional Fiduciary or Trustee
As an alternative to your family members or close friends, you may choose to appoint an institutional trustee such as your bank’s trust department, or professional fiduciary, to manage and invest your assets for the benefit of your children. One key advantage of a professional or institutional fiduciary is that they are not subject to the same family pressures and can provide neutral management. A professional fiduciary also has critical professional knowledge in working with wills and trusts, and managing and investing estate assets. However, a bank or trust company will charge a fee for its services, and are not necessarily familiar with your family dynamics. On the other hand, the impersonal aspect may be an advantage when it comes to providing neutral administration, especially with arguing family members.
Ultimately, you want to choose an individual or institution that is responsible, has the ability to follow with large amounts of estate paperwork, an ability to work with all of your beneficiaries, and is willing to seek the advice of qualified professionals.
In addition to choosing a guardian and trustee, also consider how your assets will be managed and distributed to your children; both the mechanism of distribution and the ages or events in which your children will receive a distribution.
Planning the Distribution of your Estate
In planning how and when your estate will be distributed to your children, the first decision is what specific mechanism you will use to manage and distribute your estate. You may decide that a simple will nominating a guardian and leaving all of your assets to your children outright, in equal shares is sufficient, or you may determine that a trust is more appropriate.
If you decide to make outright distributions to your children, you must consider the Montana Uniform Transfers to Minors Act (UTMA). Under to the Montana Uniform Transfers to Minors Act (UTMA), the assets are transferred to a custodian who holds and administers the property for the benefit of a minor. UTMA custodianship can be beneficial because any type of property can be transferred and the custodian does not have to post bond, or file accountings unless mandated by the court.
However, under a UTMA custodianship property must be distributed completely at either age twenty-one or age eighteen years, depending on the circumstances. Many parents do not necessarily feel comfortable with their child receiving full control of assets at age eighteen or twenty-one and may want to consider other options.
Outright distributions not only require consideration of the Uniform Transfer to Minors Act, but it provides for less over the distribution of your estate. With that in mind, you may determine that you do not want to leave your estate to your children outright. When providing distributions of your estate for your children, it often makes more sense to create a trust to manage the assets for your children, rather than provide for an outright distribution.
A trust is a written agreement wherein a separate entity, the trust, holds title of property and assets and manages those assets on behalf of an individual. A trust is created by a grantor (also known as the “trustor” or “settlor”) and the assets of the trust are managed by a trustee for the benefit of the beneficiary. In general, the most commonly used trusts for children are testamentary trusts or revocable living trusts.
Testamentary Trust through a Will
A testamentary trust is a trust that is set out in a Last Will and Testament. A testamentary trust is only effective upon the death of the grantor through the probate of his or her Last Will and Testament. While testamentary trusts can be a simple and affordable mechanism, a probate of the estate is required before the trust can be funded and your children can receive any distribution from the estate. Not only does this delay the distribution of the assets because the assets must first go through the probate process, but the probate process requires additional fees and expenses, which will reduce the amount of assets available for distribution to your children.
Revocable Living Trust
A Revocable Living Trust is a type of trust that is immediately effective upon creation, but can be amended or terminated at any point by the grantor during his or her lifetime. A Revocable Living Trust offers much more flexibility in the distribution of assets than outright distributions or testamentary trusts.
Revocable Living Trusts do not have to go through the probate process, which permits distributions to begin immediately, in a private manner without the additional costs and fees associated with probate. Moreover, a Revocable Living Trust allows you to control exactly when and how your children receive assets. For example, you may direct that the trustee distribute 1/3 of the trust assets when a child reaches twenty-one; 1/3 when the child reaches thirty; and 1/3 at age thirty-five.
While Revocable Living Trusts can be beneficial estate planning tools, they are not necessarily advantageous for everyone. Revocable Living Trusts typically cost significantly more to create and administer than an estate plan with only a will. Moreover, Revocable Living Trusts require re-titling of assets in the name of the trust, and additional administration by the grantor. Therefore, it is essential to review you assets, family situation, and personal preferences with an estate planning attorney before deciding to create a Revocable Living Trust to benefit your children.
Consider Your Specific Circumstances
While these are the general issues to consider when providing for your young children in your estate, it is important to also consider your specific circumstances. If you have children from a prior marriage, or children with special needs, then you will need to take some additional steps in planning for their future.
If you have young children, even some basic estate planning will provide you with control over the care of your children and the peace of mind that your children will be provided for, both personally and financially, in the manner you see fit.
If you have questions or would like additional information regarding estate planning for minor children contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com