Many people think of estate planning as something to be done later in life, after the kids are grown and out of the house and you're nearing retirement. While folks at this stage of life certainly should make sure their planning is complete, we recommend considering your estate plan much earlier, especially if you have young children.
When you're young, in your forties, thirties, or even twenties, estate planning is the furthest thing from your mind. After all, your whole life is ahead of you—why think about end of life issues right now? Perhaps you don't yet have many assets, so you don't think you really need to plan for their distribution. But regardless of your wealth or stage of life, if you have young children, you need to plan for their care and provision should something happen to you.
First, consider who you trust to care for your children should you die. This person, called a guardian, is appointed in your estate planning documents and is charged with raising for your children if you pass away. When choosing a guardian, you should think very carefully about who in your life you can trust with such a responsibility. Do their values align with yours, will they love your children well, can they provide a stable and safe home? We recommend speaking with whoever you are considering to make sure they are willing to accept this responsibility, and that they are not blindsided should something happen to you and they are suddenly asked to be responsible for your children.
Second, you need to think about how you will leave assets to your children to ensure they are provided for. Remember, this is important no matter how much wealth or property you possess. Any inheritance you leave will be valuable to your children, and ensuring that it is used wisely is critical.
If you have very young children, they will obviously need a trusted adult to manage their assets for them until they come of age. Just as you will appoint a guardian for your children, you will also appoint a Trustee to oversee their financial affairs. Choose this person wisely. If someone has a poor financial track record and does not manage their own money well, you probably don't want them in charge of your child's inheritance. A big mistake is to leave assets to the guardian directly to use for the children, instead of in trust for your children. Once you leave assets to the guardian directly, the guardian is free to do what he or she wants to with the assets, and those assets are also potentially at risk to satisfy the guardian's creditors.
For older children, they will still need a Trustee to manage their assets until they come of age. But what happens when they turn 18? While at this age your child is legally an adult, they may not be ready to handle an inheritance on their own. Think about it—if a large sum of money was handed to 18-year-old you, would you have used it wisely?
To ensure your child's inheritance is not squandered, you can choose to distribute assets gradually as your child grows older—and wiser. For instance, you could hold the funds in a trust, with a Trustee allotting money as needed, until your child reaches a certain age, such as 25. You could also release their assets in stages, perhaps 1/3 at 21, half of the remainder at 25, and the rest at 30. And, while it's in trust, the trustee can use the assets to provide for the child's healthcare, education and general welfare if such distributions are allowed in your plan documents. There are many options for ensuring your child's inheritance is a blessing rather than a curse, and we can help you decide what plan is best for you.
If you're concerned about protecting your children in your estate plan, call Peach State Wills and Trusts at (678) 344-5342. We can help you decide the best course of action and build an effective personalized plan to protect your loved ones.
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