In April my husband and I welcomed a beautiful baby boy to our family. We had a long to-do list to make sure everything was in order for him. In addition to applying for a birth certificate and insurance we knew we needed to revise our estate plan to include our new son. Although we hope we’ll always be around for our children, we know we need to plan for the possibility that something may happen to us one day. It’s hard thinking about someone else caring for our kids, but we also know that a newborn and three-year old would need someone to raise them if we couldn’t and that they couldn’t manage a home and their inheritance on their own.
When considering how to protect your children you need to make arrangements for who will care for them and who will manage their finances. These are two different roles that can be filled by two different people.
As to the physical care of your children, you can designate who you desire to be their guardian. This designation is usually made in your will. Whoever you designate will still have to go to a judge to ask to have the legal authority for guardian, but the court will know who you wanted to raise your children when making their appointment. This mandatory court involvement means there will always be oversight to ensure your children are being properly taken care of while they are minors by the people you nominated.
For the management of your children’s finances, you can set up a trust naming your children as the beneficiaries and someone you trust as the trustee or manager over the assets in the trust. Although a three-year old can’t own a home or accept life insurance proceeds, your trust can. This avoids probate court to transfer the property after you die and also ensures that the right person has oversight. In a trust you can also set restrictions for how you want your children to receive their inheritance. You can give guidance to your trustee for how you would like the funds to be used. For example, you can specify that the funds can always be used for their health, education, and support. You can also state the ages your children can control their own inheritance. You may think that 18 is too young to receive a lump sum of money, but that they could handle a third when they’re 25, another third when they’re 30, and the remainder when they’re 35. Another benefit of a trust is that you’re not transferring ownership to a third party and hoping that they do the right thing and that they don’t have legal or financial problems that jeopardize your children’s inheritance. The inheritance will be held in trust solely for your children’s benefit, out of the reach of creditors, divorce court, and other legal problems.
By planning ahead you can have the peace of mind of knowing that even if something happens to you, your children will be properly taken care of and will have the benefit of the protections you set up for them.