Planning for Minor Children
If you have minor children, it is imperative for you and your spouse to arrange for an estate planning to benefit your children, even if you are young, newly married and have no substantial assets.
Here are just a few reasons why:
Minor children listed as beneficiaries of your life insurance:
If you or your spouse (or both of you), have life insurance listing your minor children as the beneficiaries, and believe that in the event of your or your spouse’s death, your children will easily receive the life insurance proceeds and hence maintain their lifestyle and/or will be able to pay for their Financial needs, THINK AGAIN!
In California, minor children will NOT receive life insurance proceeds, while they are minors (under 18 in California). No insurance company will make such payments to your children directly, even if you have designated them as your beneficiaries on your life insurance documents.
Future of the life insurance proceeds:
The insurance company will make full payments of the policy but not to your children; but rather to the Superior Court of the area where your minor children reside. The said proceeds or funds will be directly deposited in a blocked account under the supervision of a probate judge.
Life insurance proceeds blocked in an account under court supervision:
Your minor children will not be allowed access to the money when they need it the most for their health, educations, and support, except with the approval of the court. This means that an adult member of your family will need to petition the court to demonstrate the financial needs of your minor children for a particular purpose. A few examples are school tuition, medical expenses, etc. The court will most probably appoint a temporary guardian for your children to monitor this process. In return the guardian is ordered to report all the details back to the court.
This may be a recurring experience where a new petition must be filed with court on behalf of the minor children. Theoretically, every time there is a particular financial need concerning your children, a specific court petition will be required to address the need. This in turn, will create additional attorney’s fees and related costs.
Other problems with the funds being blocked in an account under court supervision:
Other than restricted or no access to your life insurance funds for your minor children during their growing years for their health, education, or support, there may be greater concerns on your children’s 18th birthday. One of the worst-case scenarios is an 18-year-old child gaining 100 % access to the life insurance funds immediately on their 18th birthday. We encourage our clients to think about the potential consequences of impressionable young adults having unrestricted access to the life insurance funds.
Estate planning protects your minor children:
Instead of leaving your children’s future to a court which may not come to the decisions that you would want, you can take matters into your own hands while you are alive and well. After all, who other than you and your spouse knows what’s best for your children?
You will nominate a guardian (also called a conservator) for your minor children. You will provide the guardian clear instructions on how, when, and what must be done to offer a life time of comfort to your minor children in the event of your passing, without the interference of a judge or a court appointed guardian.
Choosing the best qualified candidate to be your children’s guardian:
Much planning and consideration should go into selection of the most qualified guardian for your minor children. You must exercise your utmost due diligence in determining which of the individuals who are close to you, whether a family member, a distant relative, or a close friend, will be a suitable candidate to be your children’s guardian. You may designate one individual to be your children’s physical guardian (also called guardian of the person) and another individual to be your children’s financial guardian (also called guardian of the estate).
Your estate planning attorney should have a meaningful discussion with you and your spouse to assist you to identify and designate the best candidate possible for your minor children.
Here are some of the factors to consider before a particular individual is selected by you as guardian on your estate plan:
Age: How old is your children’s designated guardian, compared to the age of your children? For example, if your parents are currently in their eighties and your minor child is two years old, mathematically and logically, they may not be the most suitable candidates to be designated as guardian of your children.
Location: if you are no longer living, and the guardian of your children lives in another state, are you comfortable with the idea of your children moving to where their guardian lives?
Existing Relationship: Do your children know the individual you are considering to be their guardian? Have they had a positive interaction with that individual and how close of a relationship already exists between them, independent of you?
Does your candidate for guardian of your children have children of his/her own?
If he/she does have children, how are those children and what is the nature of their relationship with your children, if any?
Is your candidate financially responsible?
What is the history of your candidate for your children’s guardian as far as fiscal/financial responsibility of his/her own money? Is he/she good with money management or is he/she someone who can hardly manage his/her own funds?
This list can be a very long list depending on the particular circumstances of each individual. For instance, if you are considering your cousin to be a candidate as guardian because she has a very amicable and loving relationship with your children, but your cousin is married to a very controlling husband, will your cousin ever be in a position to carry out her duties as a guardian for your children or will your cousin’s husband be dictating what he likes for your child? Would he even allow your cousin to act as the guardian?
Trust for your children
You know by now that in the absence of an estate plan, if an individual dies, his/her assets will be distributed according to a fixed, predetermined formula determined by California law. Whereas, a properly drafted estate plan allows you to determine the time, the amount, and the manner of distributions of your assets to your children in the future. You can even design your estate plan in such a way so as to protect your children’s inheritance in the event of unforeseen occurrences in their own lives, even when they will reach adulthood and beyond.
How can you protect your children’s inheritance NOW ?
Even though when you are crafting your estate plan, everyone is well and alive and even though your children may be young, you can still plan NOW to protect their inheritance when they are much older in the future, when both parents have passed and when the children are well in adults and have children of their own. This kind of innovative estate planning requires a custom-made planning approach and a well-thought out plan that should fit your particular circumstances, family situations and special concerns that may currently exist in your life and the lives of your loved ones.
What if my family or financial circumstances change in the future? Will my estate plan still work?
This is a very important question that comes up in every consultation with my new clients. Naturally, we cannot predict the future. A sweet and amicable individual you have in mind to designate as the guardian for your children, may turn out to be an unkind, irresponsible person in the future. Your children who may have special needs today, thus requiring a specially designed estate plan, may no longer possess that special need in the future. Your close relationship with a sibling today causing you to leave a gift for him or her upon your death, might no longer be so close to you several years in the future. And of course, we can go on and on.
What about the estate planning you did years ago? The answer is that your estate plan would benefit you only if it still fit your objectives, family situations, relationships and needs. If these change, so should your estate plan. Thus, the estate plan you craft today may or may not be applicable and suitable for you in the future, depending on your particular situation. That’s why I have many clients that I did estate planning for years ago who do not need any modifications to their original estate plan. However, there are other clients who have come to me to modify their estate plans to fit their changing circumstances and/or objectives.