- Posted on: Feb 14 2020
Arakaky is an associate in the Leesburg Office at Dunlap Bennett & Ludwig.
You’ve worked hard for many years at your employment to provide for your family and build up your estate. You know how critical it is that your estate planning documents are prepared correctly so you can pass on what you own to your loved ones without a glitch. When you have adult children, there may be ways to reduce your probate estate via transfer-on-death beneficiaries on your assets. This can help reduce the stress that generally accompanies planning for your estate. However, if you have minor children and/or beneficiaries whom you would like to pass your estate to, there are some very important issues and considerations you will want to think through.
Last Will vs. Living Trust: It’s true that all people, regardless of their estate, should consider whether a last will and testament or a living revocable trust makes the most sense, given their particular circumstances. But this issue’s importance is heightened when you have minor children. Why? Well, that’s because minors cannot inherit property outright, so you should not be designating them as beneficiaries on your assets to avoid probate. This means that you will have to pass property on to them through a will or a living trust. If you only have a will in place and you and your spouse pass away before your children turn 18, your estate will very likely not be available to help care for them for at least a few months. This is because your executor will have to give an inventory to the court of your estate’s assets and liabilities, and your estate’s assets will be frozen in the interim. The delay will be a strain on the guardians of your children, which is made even worse when you consider the emotional trauma of losing one or both parents. A living trust would be a great option to avoid this scenario.
Testamentary Trust: Even if you decide to go with a will, you are still going to need to create a trust. Instead of a living trust, you will need a testamentary trust. This is a trust that is created and funded through the probate process, rather than during your lifetime. You need this trust mentioned in your will because otherwise if you name your children as beneficiaries on your will and you pass away before they turn 18, the court will appoint a guardian over the estate of the child. A court will closely monitor the guardian of the estate and expect them to make yearly filings and accountings of the child’s estate until the child reaches 18. Setting up a testamentary trust will allow the trustee to handle the child’s estate instead. The trustee would have the discretion to use the trust funds for the health, education, maintenance, and support of the child until he or she reaches the age they are to receive their inheritance outright. This age could be 18, but it need not be. It could be 21, 25, 30, or even older. It can also be done in installments at different ages (e.g. half at 21 and a half at 30).
Guardian and Trustee: If you have minor children, you will have to name a guardian in your will in case you and your spouse are not around to raise your child. However, that person is not necessarily the same person designated to act as the trustee of the living or testamentary trust. Naming the same person to act as guardian and trustee can definitely cut down on administration difficulties. However, designating separate individuals for each role has the benefit of checks and balances. It protects the funds in the trust from being misused by the guardian. The trustee can veto the distribution if they feel it isn’t necessary for the child’s health, education, maintenance, and support.
When you have minor children, your estate planning must take into account these considerations so you can make the best choice for your family. There may be additional factors to consider as well, such as if your child has a disability and is likely to need Medicaid benefits in the future. Discussions with your attorneys should be holistic and take all relevant factors into account. The estate planning attorneys at Dunlap Bennett & Ludwig can assist you in navigating through the estate planning waters and avoid pitfalls for you and your family.
Posted in: Estate Planning