No one enjoys talking about estate planning. This is especially true for young adults. There are two common reasons why young adults believe a proper estate plan is unnecessary: (1) they are healthy and do not plan on dying anytime soon; and (2) they do not have substantial assets. Despite these two common excuses, life happens. It is important for young adults with minor children to have a proper estate plan to be prepared for the times when life gets ugly.
Appointing Guardians
One of the most important purposes of a Will is to appoint guardians for minor children in the event both parents pass away. The guardian for the minor children will effectively assume the role as mom and dad and are responsible for the care and raising of the minor children. Parents with minor children want to make sure their children end up being cared for by people they trust. Through appointing guardians in a will, parents avoid a potential battle between family and friends for who should care for the minor children. It also ensures that minor children are placed in a home that the parents feel best is best suited to raise their children.
Testamentary Trust for Minors
The Will likely will create a trust for the benefit of the minor children. Without a trust, the parents’ money would likely go into a custodial account for the minor children and be distributed outright to the children once they reach the age of 18. Most parents remember being 18 themselves and do not want their children to receive a lump sum of money when they reach that age. Common trust provisions allow the guardian to pay for all expenses of the children until they reach the age of 18. Once the children reach 18, the trust can be used to pay for a college education. After reaching the age of 22, the annual income from the trust can be distributed to the children. It is common that the principal balance of the trust does not get distributed until 25 or older, depending on the circumstances. A trustee will also need to be appointed to manage the money. Serving as trustee requires time and energy. The trustee can be an individual or a local trust company, depending on the individual circumstances.
Life Insurance
Typically, the younger the family the more important life insurance is because (1) the parents have not been working as long to accrue a substantial amount of assets; and (2) the younger the children means the longer until the children are able to support themselves. The last thing parents want to do is burden their appointed guardians with paying for their children’s expenses because there are not sufficient assets. For a healthy young couple life insurance can be a relatively cheap mechanism to not only ensure their children have sufficient funds to make it to 18, but also pay for college and provide a lump sum distribution in the future. While estate planning can be a heavy topic to discuss, it is important and the team of Kennelly Business Law makes sure our clients are not overwhelmed with information or decisions. Contact Jeff Gunkelman at jeff@kennellybusinesslaw.com or any of our members at 701-478-4900 today to learn more about estate planning for families with young children.