{Read in 7 minutes} Very often parents come in to see me for estate planning services. Some are parents of adult children; others are parents of minor (under 18 years of age) children. Parents of minor children are concerned about the welfare of their children should they both die before their children reach the age of majority, often focusing on two main points:
– Who should become the Guardians of their children if the children have no surviving parent before reaching the age of majority?
– How should they leave money to their children if they are still minors when they inherit?
Parents are what lawyers call the ”natural Guardians” of their children. This means that, so long as their children are minors, they have the legal authority to make medical decisions for them, include them on their health insurance, enroll them in school, and other common things that parents do for their children every single day. Only parents and children enjoy this “natural” Guardian relationship; if someone else is going to become the Guardian of your children, then a Court needs to be involved.
Example: Let’s say that I have two children, both of whom are under the age of 18. I die, and their other parent had died before me. These children no longer have anyone with any legal authority to make decisions for them or advocate on their behalf. Someone needs to step up to the plate and petition a Court to become my children’s legal guardian.
How do clients rectify this? Well, a Will is a great and primary place to name a Guardian for your children. Unlike guardianships for adults, guardianships for children always occur whenever you have a minor lose their parents. In other words, somebody needs to pick up the ball and make these decisions on their behalf.
If a parent includes a provision in their Will naming a Guardian, the court gives great deference to that, and almost always (99% plus of the time) appoints the Guardian that the parents named. The Guardian would apply to the courts to become the legal Guardian, and after the Court processes some papers, that Guardian would get a certificate with the raised seal of the Court, which would allow them to evidence their appointment as the Guardian and do things like make medical decisions, enroll in schools, et cetera.
What are the requirements to be a Guardian? They are the same requirements that a client must face when picking an Executor:
– The Guardian must be at least 18 years of age.
– They must have no felony convictions.
– They must either be a US citizen, or a permanent resident of the United States (green card holder).
In addition, the Court will run a background check on the proposed Guardian with the New York State Office of Children and Family Services, or OCFS. What is the Court looking for here? Does the Guardian have any open cases of child abuse or neglect? In the natural course of events, this is not an issue and the Court will appoint the preferred person as the Guardian.
When it comes to providing for your children after death, there are lots of options. However, the most popular option is to create a Trust in the client’s Will that allows a Trustee to hold the assets until the beneficiary reaches a certain age. For example, perhaps for my two minor children I decide that I wish to create such a Trust in my Will. I would say that upon my death, all of my assets are divided equally between two Trusts for their benefit. The Trustee is my sister, who is charged with collecting these funds, investing them, and holding on to them until my children reach an age at which I think that they will be financially mature enough to inherit the money. Before my children reach that age, my sister has the authority to invade the assets of the Trust to pay for things that she deems to be advisable. For example, high school or college education costs, purchase of a car, purchase of a home, financial assistance in getting married, or starting a business, et cetera.
Why is this sort of plan popular? It allows the parents to make their own rules and determine who should be calling the shots, knowing and considering the financial maturity of their children, and the relationship that their preferred Trustee will have with those children.
What is the preferred age for a child to inherit money?
Well, it really varies. If I leave a child money in my Will and I don’t leave it in Trust, the Court will hold the funds until the child turns 18. Then the child will receive all of the funds, whether they are financially mature enough to handle them or not. If a client writes a Will, it often depends upon the age of both the client and the children. If I have young parents as clients, perhaps young professionals in their early 30s, they are more likely to leave money in trust until 21 or 25. They are unable to consider whether the child is a spender or a saver, because the child is likely less than five years old. They can always amend their Wills later as the child ages and they can observe the child’s spending and savings habits.
Parents with teenage children often prefer to delay things until, at a minimum, age 25. However, 30 and 35 are increasingly popular with many parents suggesting a distribution that would provide half at age 30 and half at age 35, or breaking up the distributions into payouts at age 25, 30 and 35. Again, this is all a matter of the parents’ preference.
The Trustee can be anyone that the parents would like — again, with the same qualifications to be a Guardian or an Executor, discussed above. Very often the parent will ask, “Does the Trustee and the Guardian have to be the same person?” The answer is, no, but they usually are. When might someone name a different Trustee and Guardian? Well, perhaps the client feels that one person in their life would be a fantastic Guardian and parental figure for their young child, but that person simply cannot balance their own checkbook. In that situation, the client might name the first person as a Guardian, and then a different person as the Trustee to invest and manage the assets. This sort of plan will work, so long as the Trustee and the Guardian like and respect each other; the Guardian is going to need to ask the Trustee to release funds to pay for the children’s needs.
As I’ve shown, parents with children have a lot to think about. Who are their Guardians? Who are the Trustees? At what age are their children going to be financially mature to handle money? This is something that every client should discuss with their estate planning attorney. For more information on this topic, please contact me.