I have represented many parents with young children in connection with their estate planning needs. Young parents are often just starting out in their careers and haven’t accumulated the same wealth, assets and liabilities that older parents have, however their needs are just as critical (if not more) to plan for.
Typically a young couple will come to me without an estate plan in place. It is common for the couple to have already purchased life insurance, however I have rarely met with a young couple who has coordinated the life insurance and their other assets with their estate plan.
Usually the spouses will name each other as the primary beneficiary of the life insurance and the children as the alternates. When a minor child is named as an outright beneficiary of life insurance, it is very likely that those proceeds would need to be paid to a court-appointed guardian to represent the minor’s interests. The guardianship would continue until the child reaches the age of majority. Guardianships are extremely costly and unnecessary and can easily be avoided.
Any time there is a court process (such as a guardianship) a lawyer is needed, court costs are incurred and the guardian gets paid as well. All of these expenses can quickly deplete the guardianship assets.
For these young parents I have been establishing testamentary trusts in their estate plans which are created at the time of death. However, it is equally important to actually name the testamentary trust as the alternate beneficiary on the life insurance beneficiary designation form. If this step is not taken then the proceeds will bypass the testamentary trust and go to the minor child through the guardianship. If the testamentary trust is named, however, the life insurance proceeds will be distributed to the Trustee and court intervention can be avoided.
A similar structure can be utilized for retirement plan benefits when naming the minor children as contingent beneficiaries, however there are tax consequences that must be addressed in the estate planning documents.
It is also critical to name a guardian for the minor children in the Wills. This is often a contentious issue among the married couple because each spouse typically wants to name his or her family members to serve as guardian. One way to involve both families is to name one family member as “guardian” and another as “trustee.” The guardian will have legal custody of the minor but the trustee will manage the money in trust and make decisions regarding distributions. This not only separates the powers but it involves both families in the minor’s life.
These issues are very important for young parents to consider and although they may not think that their “estates” warrant an “estate plan,” I think their needs are critical to address.
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