Being a parent to young children can be exhausting between ballet and soccer practice, bath time, homework, and bedtime. It is not a surprise that most parents of young children don’t give estate planning much thought. However, parents with young children can benefit greatly from having an estate plan and the assistance of an attorney that specializes in estate planning. It is extremely common for parents with minor children to make mistakes that can affect their estate and, most importantly, their children, if something tragic and unthinkable happens to them. As an estate planning attorney and mother of a kindergartner, I understand the stress that comes with thinking about an estate plan while managing work and life, but it is an important step for all parents.
When I am at one of my daughter’s school events and someone asks me what I do for a living and I tell them I am an estate planning attorney, the most common response is, “We never got around to getting a will because we don’t have a big enough estate yet and we probably don’t need one until we are closer to retirement. Right?” No matter how large or small your savings account currently is, parents with minor children have something even more important to make arrangements for, their children. In fact, having minor children is one of the factors that makes having a well-thought out estate plan essential. Estate plans for parents with minor children are often simple, especially since assets are often still modest, but even a simple plan can protect your children if something happens to one or both of their parents. A good estate plan should include a Last Will and Testament at the least, and typically would utilize a testamentary trust to protect and manage assets that may pass to a minor child or young adult before they are legally or emotionally able to inherit assets directly. Revocable living trusts that also create trusts for the children are also an option some clients elect to use because a trust can provide additional protection to the parents/clients in case of incapacity. A Financial Power of Attorney and Medical Power of Attorney are applicable during lifetime, but are an essential component of an estate plan. Younger individuals do not think that they could become incapacitated and often don’t sign these important powers of attorney that tell financial institutions and medical providers who should make financial and medical decisions if they cannot due to incapacity. Unfortunately, no one knows when an accident or health issue may occur and the time to execute these powers of attorney is now. Parents with young children should take the time to meet with an estate planning attorney to discuss the best options for a customized estate plan to address their unique family situation. Parents are busy and stressed and adding more appointments to a schedule seems daunting, but having an estate plan in place creates security for your family and peace of mind for the parents.
If parents have taken the step to have a will prepared, whether through an attorney or on their own, they sometimes set the will up to distribute their property, but they fail to include anything about who should become a legal guardian for their children, if something happens to them. In Arizona, a parent can nominate in their Last Will and Testament a legal guardian to take care of their children if something happens to them. If a guardian is needed due to the death of the parents of a minor child, the court can consider the wishes of the parents as stated in their Last Will and Testament. Without the parent previously having nominated a guardian, the court will make a decision on who should be the guardian for the children based on what the court believes is in the children’s best interests, but the court might make a decision different than the parents may have wanted. Family dynamics are often complex and there might be a reason why, even in loving families, one set of grandparents or one particular aunt would be the most appropriate guardian. When considering a potential guardian, parents should think about the familiarity between the children and the potential guardian, where the guardian lives, and the age and health of the prospective guardians. Nominating a guardian is as much about picking the right person, as it is about excluding certain persons from being selected if they would be a poor choice for the children’s emotional or physical well-being. Friends with young children have told me that they want to schedule an appointment with me to execute an estate plan, but they can’t agree with their spouse on who to nominate as a guardian and that the discussion is too hard to have. Even though these discussions can be difficult, it is going to be even harder for a court to determine who should be guardian, without having the parents weigh in on a decision about children and a family that they know best. While the conversation may be hard, it is important to nominate a guardian. Once a parent has a good idea of who they would nominate, it is advisable to speak to the prospective guardian to make sure they would be willing to serve and would take on the tremendous responsibility of serving as guardian.
Whether parents have or have not set up an estate plan, they often complete paperwork for their assets in a manner that contradicts their intentions on how to best support their spouse or minor children. Parents of young children may not have amassed great wealth yet, but they usually do have assets that have an option to designate a beneficiary or beneficiaries on their death. Parents often have life insurance, retirement accounts, and checking or savings accounts, and these assets would be important to supporting their loved ones upon their death. While parents work hard to obtain these assets, they often give very little thought to the paperwork that they had to fill out to establish these accounts. In reviewing clients’ documents that they set up on their own, it is a common mistake that they name a minor child as a beneficiary on retirement and life insurance accounts. The paperwork that establishes an asset, including a beneficiary designation, controls what happens to the asset on the owner’s death, even if they have an estate plan in place. Families typically have several of these types of assets that are referred to as non-probate assets since they are controlled and pass by operation of the terms of the agreement signed through the financial institution. Minor children cannot inherit assets directly and when minor children are to receive assets a costly and complex court proceeding, called a conservatorship in Arizona, is required. Beyond the cost, another significant drawback of a conservatorship is that the minor receives the assets on his or her 18th birthday, without restriction. Well-meaning parents often name their minor children as beneficiaries on their accounts without realizing that minor children can’t collect these assets without a conservator. An estate plan can create trusts for minor children that hold assets for the children in a more cost-efficient manner outside of the court system. Parents can also establish restrictions in a trust that can protect the assets for the child beyond their 18th birthday and can nominate a trustee to manage these assets until the child has sufficient maturity to do so on his or her own. Even parents of minor children that already have an estate plan in place should consult with their attorney when setting up beneficiary designations on accounts because these designation forms would control instead of their will or trust and may inadvertently defeat their carefully crafted estate plan.
Article Written By: Sandra
Trust and Estate Planning