Estate Planning with Minor Children: Four Things to Know

Are your kids protected if something were to happen to you? If you’re like many parents, the
answer is no. Maybe you’ve been meaning to do estate planning, but you’ve just been busy. Or
maybe, you’ve put off estate planning because it can be difficult to think about. But the truth is
that life is unpredictable. If you want control over who will raise your children and how any
money you leave to them will be distributed, it is essential that you put an estate plan in place.
To get you started, here are four things parents should know about estate planning with minor children.

1. Name Long-term Guardians

It is important that parents of minor children name long-term guardians for their children.
Guardians are typically named in a will. If a child is left without any living parent, a court will
look to the parent’s will to determine who should be appointed guardian of the child. Maybe
you’ve told a sibling that you would like them to be the guardian for your children if something
were to happen to you? Maybe your children have godparents? Is this enough? Unfortunately,
no, without legally documenting your wishes in a will, the court won’t know what your
intention was for your children once you are gone.

It's also important that you list at least two alternates when naming guardians for your children
in case your first (or second) choice is not able to serve. For example, what if you named your
sister as guardian, but you were in an accident together? Without a backup the court wouldn’t
know who else you would want to raise your children.

2. Name Short-Term Guardians

In addition to long-term guardians, it’s important that you designate short-term guardians who
live close by who are legally authorized to care for your children if something were to happen
to you and your child’s other parent. This is especially important if the long-term guardians
you’ve selected do not live close by. You should name short-term guardians who could care for
your children before the long-term guardians could get here.

Even if you have long-term guardians close by, however, you should still get legal
documentation in place to name them as short-term guardians if you become temporarily
incapacitated.

Finally, make sure you tell the people who care for your children regularly who your short-term
guardians are. Consider this, if you left your kids with a babysitter for date night and there was
a car accident, does your babysitter know who to call to come take care of your children? If not,
your children could temporarily be placed into the custody of child and family services if something happened to you and their other parent. No parent wants to imagine this for their child. With proper planning you can put a plan in place to avoid this outcome.

3. Do Not List Minor Children as Beneficiaries on Your Life Insurance Policy

Minor children cannot inherit money or property directly. Many people do not think of this and
name their children as beneficiaries on their life insurance policy. If you make this mistake and
life insurance proceeds become payable to a minor child, the remaining parent or guardians will
need to go to court and seek to be named as a guardian of the minor’s estate. As a guardian of
a minor’s estate, they will not be able to independently manage the money and will need to
obtain preapproval from the court for all investments and almost all expenditures.

For example, imagine your spouse passed away and made the mistake of naming your 3-year-
old daughter as the beneficiary of his life insurance policy instead of you. To access this money
to buy things for your daughter you will have to petition the court to be named as a guardian of
her estate. Every time you want to buy something for your daughter, like a new toy or a week
of summer camp, you will need to file a formal request with backup documentation with the
court asking them for permission to spend funds. Also, as a parents you are responsible for
food, clothing, shelter and medical care for minors, the Court may wish to know why you are
not paying for any such expenditures with your own funds.

In addition, any money from a life insurance policy that was payable to a minor will be
transferred to the minor as soon as they turn 18. Would you want your 18-year-old to have
access to hundreds of thousands of dollars?

4. The Benefits of a Trust

Setting up a trust for your children allows you to distribute money to your kids at ages you want
like 25, 30, or 35 rather than at 18. If you establish a trust for your children, you can name that
trust as the beneficiary of any life insurance policy and leave your children’s inheritance to the
trust in your will. This way the trustee (an individual you name) will be able to control the
money for your children’s benefit while they are young without court involvement. The trustee
of your children’s trust can be the same person as their guardian, but it could be someone
different. This means that if your brother is great with kids, but not with money, then he could
be the guardian and your sister, who is more financially responsible, could be the trustee. Some
trusts, called revocable living trusts, also allow your estate to avoid the time and cost of
probate if funded properly.