Planning Your Future: Estate Planning for Families with Children

A family with minor children often has a home with a mortgage, some life insurance and a small, but growing, nest egg of assets. When is estate planning appropriate for any family? Planning to provide for your family is always appropriate. The “size” of your estate should only be a factor in choosing the right estate plan. Estate planning enables parents to better plan for the care of their children, ensures property is transferred to desired individuals, and determines who will handle the assets of the estate, as well as the children’s property.

Parents of young children often postpone estate planning, or fail to do so altogether, justifying their decisions on various “reasons” such as: they are young; certain decisions are just too difficult to make; they cannot afford the cost of estate planning; or they cannot decide who should be guardian of their children. This can be a recipe for disaster, as such indecision can leave a court with no guidance and thus there is the possibility of inappropriate guardians and the additional consequence of leaving all of the parents’ assets to their children upon their reaching age 21. Prudence dictates that parents should properly express their choices now and make changes later if need be, rather than to postpone the decision altogether.

Parents often want their assets used for their children’s education. But, what about supporting the children until they are of college age. First and foremost, parents must consider support – food, clothing and shelter. Consideration should also be given to how family property should be owned, whether each parent is equally able to support the children and how the children should be raised if both parents die. For parents of young children, the aims of estate planning include:

  1. planning for care of the children
  2. ensuring property will be transferred to desired individuals
  3. determining who will handle the children’s property until they are older
  4. determining who should handle the business of the estate

Perhaps the most important benefit of estate planning is that it gives parents the opportunity to decide who will care for their children if both parents are gone. If there is no will or appointment naming a guardian, the court may decide the issue in a vacuum (i.e., without knowledge of family values and lifestyle). If a parent dies, the survivor is generally the guardian of the children. If parents are divorced and a parent dies, the surviving parent may be the guardian. It is important for divorced and single parents to have a will or designation of guardianship for their children. When nominating a guardian, give careful consideration to lifestyle and values. Consider the ability of the potential guardian to raise young children. Parents should discuss their intentions with the potential nominees as well.

Parents need to plan for their children’s care. Assets, including life insurance, should be reviewed periodically so that the parents know how much money will be available if and when the need arises, and whether such funds are adequate. Furthermore, someone must be responsible for what is left to the children. Parents know best who this is, not the courts.

Absent estate planning, the funds will be divided equally among the children, for administration by the court appointed guardian, and the remaining assets will be distributed to each child when he or she turns 21. Yet, many parents prefer that their assets be held in trust for the children until they are 25 years old, if not older. Parents may also prefer to have a combined pool of assets for the children, instead of separate equal shares, until the time of final distribution. This can be achieved through a proper estate planning which may include a “living” revocable trust, which is administered privately by a trustee, not through court-supervised administration.

A proper estate plan does not end with preparing the “right” documents. All assets should be examined to determine that their ownership “fits” in the estate plan. Some property is transferred automatically at death to a person through survivorship rights. This property, includes assets transferred by beneficiary designation (such as IRAs 401(k) plan benefits, life insurance policies) and other property may be held in joint tenancy with right of survivorship. Probate property (property with no survivorship rights and no properly designated beneficiary) is transferred according to a will or state intestacy law if there is no will. That said, if both parents die and have no will, Illinois intestacy laws direct that the property be distributed to the children in equal shares. While this may sound good, the needs of the children are often not the same. The cost of caring for children varies with age, medical needs, college choice and career choice. With estate planning, parents can have all assets pass into a trust to be used as they indicate, rather than automatically having assets divided equally.

Another concern is determining who should handle the assets. In Illinois, the term “executor” is used. The executor’s duties consist of marshalling estate assets, paying estate bills, notifying creditors, meting out assets, and hiring professional advisors. The executor should be someone who is willing and able, and one who can be trusted to accomplish the parent’s wishes. If a person dies without naming an executor, the court must appoint someone. Generally the adult most closely related to the parent (mother, father, sibling) will be appointed.

As young parents can see, now is the time to start estate planning. List the property you own and how title is held, what you believe is its fair market value, and all indebtedness, along with insurance policies and retirement plans, and their owners and beneficiaries. Consider your family’s needs, present AND future. Regardless of how small you believe your estate is now, legal help really is necessary. Your estate plan changes with your desires, additions to your family, “special needs” of any of your children, accumulations of wealth and other particular facts and circumstances. Thus, after you have documented your estate plan, remember to review the estate plan periodically to make sure it continues to meet your family’s needs.

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