What will happen to my children if I get real sick? What will happen if I die? These are pressing questions moms (and dads) ask, and those they hope and pray never become a reality. Unfortunately, that does become a reality for some parents and their children. Estate planning when your children are minors is different than when they are adults. First and foremost, you must name a guardian for your children, something covered in my blog, “Estate Planning for Parents of Minor Children.” Secondly, though, parents must figure out some of the financial aspects of dying when your children are minors.
What happens to the assets when children are under 19 in Alabama?
Generally, money and property can’t go directly to someone under 19 in Alabama. When someone under 19 is awarded money, such as inheritance, and a trust was not previously formed for the benefit of that child, a conservatorship will be established. A conservatorship requires someone to petition the probate court to ask permission to establish the conservatorship, the Judge will appoint a Guardian Ad Litem (an attorney for the child), investigate whether the person requesting to be the conservator is best suited for that position, and determine if the conservatorship is needed. The conservator must secure a bond and re-do it every year. Additionally, a conservator must file an accounting with the probate court every 3 years to show what assets have been used and what is left. A conservator must account for all money spent on the child, which can be a lot depending on the child’s needs.
The same process applies if a minor is awarded money from a life insurance policy, retirement account, or other account in which he or she is named as a payable on death beneficiary. Payable on death beneficiary designations are wonderful estate planning tools that allow money or other types of property to go directly to whomever is named, without the need of going through Probate Court. The problem though, is when someone is under 19, he or she cannot inherit directly. That is, you can’t leave a hundred-thousand-dollar ($100,000) life insurance policy to your 10 year old because, the 10 year old cannot receive it directly.
How do I leave money to my minor children?
Don’t name anyone under 19 years of age as your payable on death beneficiary. Just don’t. Grandparents and parents are well-intentioned when naming a minor as a payable on death beneficiary, but it has unintended consequences. As previously mentioned, a conservatorship must be established. A conservatorship will take more time and much more money. The fees and other costs associated with a conservatorship come from the money you leave to your child, so that’s less money your child will receive!
Establishing a trust for the benefit of your minor children is generally the best way to leave money to minors. The Trust can be named as the payable on death beneficiary for your life insurance policy or other accounts. The trust can hold assets until your children reach a certain age or ages, but still pay for education, medical, and some other needs. A trust is usually the best estate planning strategy when there are minor children, though all circumstances are unique and you will only know the best strategy for you after talking with an experienced estate planning attorney.
Can the Trustee and Guardian Be the Same Person?
This is a question I get often. The Trustee is the person managing the trust assets whereas the Guardian is the person caring for the children. Whether or not they are the same person is up to you as the parent. There may be valid reasons to have 2 different people, but it may also make sense for the same person to be both guardian and trustee.
When determining who to name as trustee, and whether you want that same person to be the guardian, you want to consider a number of factors. One factor is who will be willing to take on the responsibility of managing money, house, investments, paying tuition or medial expenses, and doing some of the other things required of a trustee. You also must consider who can say “no” to your children. The Trustee is a fiduciary and must do what’s best for the trust’s beneficiaries, which may require telling your children “no” from time to time when asked for money. Is the person you want to name trustworthy? Can you trust him or her with the money you leave your children? And, who will be the back-up to the initial person you choose? You must plan for the possibility your first choice may die during the administration of the trust, so then what, who?
Clarify with Your Trustee
When you name your Trustee, have a conversation with him or her about your decision and your expectations of them as the Trustee. It is just vitally important to have that conversation about your expectations, what you want him or her to do, and what your financial goals are for your children. If you kids are good at manipulation, give the Trustee the warning and let them know it’s okay to tell your kids “no” so long as it’s in the best interest of all beneficiaries and complying with the law.
Do It Right
Need help ensuring you are leaving assets to your kids or grandkids correctly? Contact Huntsville Estate Planning Lawyer, LLC and schedule an appointment with Tanya to review your goals and plan and prepare your esate plan.
