MYTHS
Myth 1: I do not need a plan. My children will automatically get everything.
If you are single, then you are correct that your children will get everything. However, it may not be automatic. Without an estate plan, your loved ones will have to go through the probate process to appoint a guardian for your children (if they are minors) and distribute the money and property that you own individually to the appropriate recipient, in this case, your minor children. However, because a minor cannot manage their own financial affairs (unless the minor is emancipated), a court will have to choose someone to do this for them. Also, once your children reach the age of majority (eighteen or twenty-one depending on your state law), the money and property will be handed over to them without any protections. To ensure that you get to choose who raises your children, who manages their inheritance, and how and when they receive their inheritance, you need an estate plan.
Myth 2: I am of modest means. I do not need a formal estate plan.
Estate planning is not just about what happens to your money and property at your death. An estate plan also provides a way for you to name the people you want to care for your minor children if you are unable to, whether that is because you are out of town, unable to make your own decisions, or have passed away. An estate plan also allows you to create a plan for what happens to you if you are unable to make your own decisions. You will still be alive, but because you cannot make your own decisions, someone will need to do so for you. This is your opportunity to name the people you trust and provide them with specific instructions about your financial and healthcare decisions.
FAQs
- What is the best way to give my minor children their inheritance?
The answer to this question depends on your unique circumstances and the needs of your minor children. However, at a minimum, it is a good idea to place any money or property you want your minor children to inherit in a trust. This will allow you to control who manages the money and property on your children’s behalf and when they will have access to it.
A trust can be created during your lifetime (called a revocable trust) or at your death (via a testamentary trust that is part of your last will and testament). The biggest difference between these two options is when the trust becomes effective. If you create a revocable trust during your lifetime, it will be for your benefit, and you can include instructions for what happens to the money and property at your death. A properly drafted and funded trust can be managed without court involvement and can be kept more private. On the other hand, if you use a testamentary trust under your last will and testament, you can still direct what will happen to your money and property, but the document will need to be filed with the probate court, and the trust will not be created until you pass away. This means that none of the instructions in the document will have any effect until you die. By contrast, a revocable trust can include provisions for what to do if you are alive but unable to care for yourself or your minor children.
When crafting instructions for how your children’s inheritance should be managed and distributed, you have a variety of options. For example, your minor children could receive a percentage upon reaching a specific age (e.g., 50 percent at thirty years old and the remainder at fifty years old). You could also structure your children’s trusts as incentive trusts to allow the trustee to give your children money only after they meet certain goals (e.g., successfully completing postsecondary education, being sober for one year, etc.). Alternatively, you can leave the decision of how and when to distribute the funds exclusively to the trustee’s discretion. This is sometimes referred to as a discretionary trust. Because your children will not be guaranteed a specific amount of money or piece of property, the funds will be better protected from any future creditors or divorcing spouses your children may have. However, when deciding to use a discretionary trust, it is important to choose your trustee wisely and communicate potential factors for the trustee to consider when giving money and property to your minor children.