Estate Planning for Parents with Minors

by Ria Nambiar

A main concern for parents working on their estate plan is determining how their children will be cared for if both parents are to pass away. This consists of both a preference over who takes care of children as well as who manages the funds for the children. 

To begin with, naming a preference for a legal guardian does not give this person any control over financial assets left to the children. Although the parent’s nomination is given priority, the court must still legally appoint this guardian to be responsible for minor children. If no legal guardian is nominated in the parents’ will, or if a will has not been prepared, the court chooses a guardian for the minor. The court typically chooses a family member for this role, although family friends or others may petition for custody before the court. In cases where the minor is at least 14 years old, the child does have some say in who the court appoints to be his or her guardian.

Determining control over financial assets left to children is a separate process from that for custody. When planning for minor children, we must consider that they cannot own property until they reach the age of 18. Therefore, a trustee must be named to determine who is responsible for managing the inheritance until the child is of age. If a trustee is already named, either in a revocable living trust or in the parents’ will, a legal process is not required for control to be transferred to the trustee. In cases where no one is named to manage these assets, the court controls all business relating to it (such as sales, refinances, etc.) until the child reaches the age of 18 or 21. Once the child is of age, everything within the inheritance is directly transferred to the child’s control.

There are many options parents can take to avoid court control over finances and to maintain autonomy over who manages their assets. The first is a custodial account. These accounts are typically established through banks, and it allows parents to name a custodian to manage the finances until the child receives the full amount at age 18. However, if the amount within the account exceeds $10,000, the court will still be involved. Additionally, if the parents wish for their children to receive the inheritance at a later age, this may not be the option for them.

Another option is a children’s trust. Setting up a children’s trust is part of creating a will, and this allows parents to choose both who manages the inheritance as well as the age their children receive it. However, a children’s trust is only useful if the will goes into effect, meaning that it does not apply in case of incapacitation since a will is only applicable after passing. Additionally, since the children’s trust is part of one’s will, the trust cannot be funded until the will goes through the probate process. For more information on why we typically want to avoid probate, visit this post explaining the drawbacks of the process.

Lastly, an option that combines the benefits of the previous ones is a revocable living trust. This allows the parents to not only choose who manages the inheritance and the age the children receive it, but it also covers situations where the parents may be incapacitated. The primary benefit to this plan that is well appreciated is that it protects the assets from the courts.