How can I provide for my minor children in my estate plan?
If you currently have minor children, you may want to consider the possibility that a parent may not be available to physically care for or financially support them if something happens to you and their other parent. Setting up a trust is a great way to provide for minor children in the event your spouse does not survive you or if you have minor children who are not the children of your current spouse. You can also use a Living Trust instead of a Last Will and Testament to leave assets to beneficiaries of any age.
Typically, this is accomplished by funding a trust with assets from your estate and allowing the minor's guardian to receive some of the income to support them until they reach adulthood, with portions of the principal transferred at set ages or life stages. For example, you may decide that 30% of the principal allotted to each beneficiary is transferred at age 21, 30% at age 25, and the balance at age 30. In any event, you are required to select a trustee. It is recommended that you select someone capable of working well with the physical guardian(s) you have chosen for your minor children to ensure less friction during difficult decisions.
How can I provide for my adult children in a will or trust?
You may wish to leave a significant portion of your estate to adult children after ensuring you have provided for your surviving spouse if you are married. If you are unmarried, adult children may receive the entirety of your estate. Some issues to take into consideration include whether to provide equal shares to children, how to allocate assets between children and your spouse, how to provide for a child with special needs, and whether you also wish to leave any assets to grandchildren, friends, or charity.
How do I leave assets to grandchildren or other young family members?
If you decide to leave assets to younger family members, you may wish to create a trust rather than simply listing the assets in your will. There are many different types of trusts, so it may be helpful to explore the options based on your situation. A trust allows you to leave assets to grandchildren or other young family members safely with the knowledge that whoever is caring for them can access funds to financially support them, all while keeping the principal safe for them to use when they become adults, perhaps for higher education or a down payment on a first home. The two common forms are a Living Trust and a testamentary trust.
What is a testamentary trust?
A testamentary trust is a type of trust that is created by your Last Will and Testament and goes into effect after your death. It may include specific requirements that outline when assets are to be transferred to any beneficiary who is a minor, including your children or grandchildren. Adding a testamentary trust to your will can help ensure assets are allocated to your minor beneficiaries in a controlled manner until they become adults.
It is important to understand that a major drawback of a testamentary trust is that the assets within the trust are still subject to probate as they are part of your overall estate before being placed into the trust. If you want to avoid probate altogether, you may wish to consider other types of trusts in your estate planning.
What benefits do trusts provide over a will for young beneficiaries?
Trusts provide several legal benefits to beneficiaries that wills do not. One of the most important benefits of using a trust is that it can allow assets to pass to your beneficiaries without going through the probate process.
Another benefit is that the principal of the assets you leave to minors cannot be used for unintended purposes by their adult guardian. You can rest easy knowing that the beneficiaries have something to get them started in life once they reach adulthood. Another benefit is that you get to name a trustee to handle the minor's finances. The trustee can be someone besides the minor's guardian. Selecting another person ensures multiple people are looking out for your beneficiaries and their best interests.
There are a few drawbacks for both you (as the grantor) and the beneficiaries. One is that the trustee, no matter how specifically you write your trust terms, may not be willing to splurge for the beneficiaries in the way you might have wanted to had you been alive to give them the money yourself. Perhaps the biggest drawback to leaving money to minors is that you are unable to know in advance which children or grandchildren may be more in need of money than others at certain points in their lives. However, you can try to account for this by looking at your children's finances while you are alive and choosing to tailor arrangements based on what you do know.
If you have more questions about estate planning, reach out a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.