Preparing an estate plan at a young age comes with a series of unique and often difficult decisions for an individual, couple or family to make with regard to how their planning will be structured. One of the primary difficulties comes from having to think about the care of their children in the event that both parents die before the children reach adulthood. This often holds people back from starting their planning, leaving their assets and their families unprotected from this unlikely-but not impossible-scenario.
To properly protect your minor children, an estate plan is a necessity. A properly drafted estate plan will outline certain key decisions that must be made to ensure that the family’s children are properly cared for. Amongst those decisions to be made are the following, namely:
How will property for the children be held-Money and other property that is held for the benefit of a minor child can be held in several different manners, each with a varying level of protection. Parents or other relatives can set up custodial accounts for their minor children, which will protect the funds for the children they are set up for until the child reaches an appropriate age. In New York, custodial accounts must be paid out to the beneficiary of the account at age 21.
In some instances, a custodial account is insufficient or inappropriate. If the creator of the account is older, he or she may pass away without naming a successor custodian. A petition would have to be filed by another individual to gain control of the custodial account. Alternatively, the amount being held for a child may be large enough that allowing the child full access to the funds at 21 may not be wanted. In such instances, the use of a trust can extend the period of time that the funds or property is not directly controlled by a child.
Who will control the property for your children-Careful consideration must be made to determine the persons who will control property for the benefit of a minor child. Factors such as the competence, financial knowledge and temperament should be considered in selecting executors (responsible for a person’s estate), trustees (responsible for managing trust assets) and custodians (responsible for holding custodial accounts. In addition, an individual’s relationship with the child beneficiaries and understanding of your wishes with regard to distributions should be given consideration as well.
Who will care for your children-The decision of who to select as a guardian for your children is often fraught with emotion, fear and jealousy on the part of both parents and the persons considered for this important position. However, the key factor must be who will best care for your children. You should consider not only how well you get along with the chosen guardian, but also how well the children get along with the selected individual(s). If a person has a large family themselves, the prospect of adding one or more children may be more than they can reasonably be expected to handle regardless of how close they are to the parents of the children. Finally, how seamlessly a guardian can take over responsibility for a child should be factored into making your final decision.
How will their education be paid for-College expenses and other educational costs should be a factor in determining how best to plan your estate. The use of savings vehicles such as a 529 plan or crummey trust can help establish a funding mechanism for education at a very young age. Life insurance can also be a helpful tool either by purchasing permanent coverage with a cash value or by carrying sufficient term life insurance to cover expected expenses.
The benefit to making these crucial decisions early on is that once an initial plan is put in place, it can be modified and changed as your children grow older to meet their changing needs. Being prepared also can be a powerful way to reduce parental anxiety about their children’s future by ensuring that their children will be protected financially and cared for even after they are gone.
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