If you have minor children, you probably plan for their future on a daily basis—how you will help them with their education, enrolling them in school activities, starting a college fund, and teaching them skills that will help them later in life. But have you ever thought about planning for what will happen to your children in case something happens to you?
How Estate Planning Can Protect Your Children's Future
Estate planning can help you ensure that you have made a plan for your children's future in the event that you become incapacitated or pass away unexpectedly. There are two primary considerations you will need to think about when creating an estate plan when you have minor children:
- Who will take care of your children if you become incapacitated or die unexpectedly?
- How will assets used to provide future care for your children be managed?
Estate planning allows you to decide in advance who you want to be appointed as a guardian to care for your children if something happens to you and how any inheritance will be spent, instead of letting a court make these decisions.
Selecting a Guardian
When selecting a guardian for your children, it is best to choose a person that a child knows well and whom you trust, such as a spouse, relative, or close family friend. You will want to choose a person who shares your family values and beliefs.
You will want to speak to the guardian about your wishes and obtain his, her or their permission to be appointed as guardian(s) prior to naming them in any estate planning documents. When a person is appointed as guardian by a court, he or she must acknowledge that he or she accepts the appointment as a guardian, so you will need to express your wishes for him or her to become a guardian and obtain his or her permission.
You may consider appointing a spouse or relative as a guardian. If you do this, you may want to specifically limit him or her as the sole guardian in case he or she remarries or something later happens to him or her so that another person does not later become responsible for caring for your children.
Providing for Your Children's Financial Future
When estate planning with minor children, you will need to think about how any inheritance will be used to provide for their future. A financial fiduciary is a person or a corporate entity that manages funds to provide care for beneficiaries. But sometimes funds are managed through a trust, and if that's the case, the person or entity administering the beneficiary's funds is a trustee.
When choosing a fiduciary or trustee to manage your estate's assets, there are three basic options:
- You may select a trusted relative or personal friend.
- You may have the funds managed through a financial institution, like a bank.
- You may use a combined approach by having a financial institution manage some tasks, like accounting and taxes, while allowing another person to make other decisions.
The first option is very common because you may feel that you can trust someone you personally know with an inheritance. That person will likely be familiar with your personal wishes and the needs of your children. A disadvantage is that this person may have less experience in managing assets and may be more influenced by beneficiaries when making financial decisions as opposed to a financial institution that will be less emotionally attached and thus less likely to be influenced.
Many people select the second option because institutions have a lot of experience in managing funds. The downside is that they may not understand your wishes and the needs of your children as well as a relative or family friend.
The third option is useful in many situations where you want a person you know to be able to make some decisions regarding how inheritance is spent without the added responsibility of managing the day-to-day tasks, like handling investments, taxes, and accounting.