Estate Planning
for Parents of Young Children By Stewart
Richardson srichardson@thoits.com Parents of young children have many of the same estate
planning needs as other individuals.
However, parents of young children must also address two unique issues:
directing the care of each child until adulthood in the event that the parents
die; and determining the nature of the inheritance each child will receive in
adulthood, even though the child’s adult personality is not yet known. Caring For Each Child Until Adulthood. Foundational estate planning for the parents of young
children will include various instructions affecting the upbringing of each
child if the child’s parents die while the child is a minor. Each parent should nominate a guardian and alternate
guardians to care for each child in the event the parents cannot do so. The nominations may be conditional. For example, a parent may nominate an
individual as guardian only if that person will raise the child in the family
home, or nominate a married couple as co-guardians only if they are still
married to each other. Parents must also provide for management of money on
behalf of young children. Ordinarily, a
trustee selected by the parent or parents will be responsible for preserving
the wealth of the deceased parent or parents and making appropriate
distributions to the child’s guardian.
Parents of young children may wish to provide specific financial
instructions regarding the child’s lifestyle, or to prevent the imposition of
financial hardship upon the child’s guardian. An estate plan may also include specific requests for
the minor child’s upbringing. For
example, some parents request that a child continue with immersion education,
or express their preference that the child work during summer vacations to earn
spending money. Such communications can
give guidance to the guardian of a minor child who wishes to raise that child
in accordance with the values of the deceased parents. “Inheritance Planning” For Children Whose Adult Personalities Are
Unknown. One of the most challenging
aspects of estate planning for parents of young children is directing the
future inheritance of such children without knowing their adult
personalities. For example, the parent
of an infant (or a child who is not yet born) cannot possibly know whether that
child will grow up to be self-motivated, a good manager of money, capable of
handling responsibility at a young age, and so forth. Yet, in the unlikely event that the parent or
parents die before the child reaches adulthood, the estate plan will give
specific directions for the eventual distribution of money to or for the
benefit of the child. Designing appropriate financial directions is
important. Such directions should be an
expression of the parent or parents’ child-rearing philosophy. For example, an estate plan may include: ·
Directions
to fully distribute the child’s inheritance to the child at one or more ages
(to avoid exerting control “from the grave”); ·
Creation
of a lifetime trust for the child, with distributions to the child only when
they are needed (to prevent the child from squandering the inheritance, e.g.,
on a bad investment or a lavish lifestyle the child has not earned); ·
Flexible
provisions granting the child more control over the inheritance when the child
maintains employment, graduates from college, reaches a specific age, or
otherwise acts in a manner the parent or parents believe demonstrates the
ability to manage money responsibly; ·
Provisions
to encourage, reward, or support the child when specific milestones occur, such
as educational accomplishments, starting a business, purchasing a home, or
marriage; and ·
Controls
to prevent distributions to the child if a trusted person (e.g., an aunt or
uncle) determines that they would not be in the child’s best interests (e.g.,
if the child has a substance abuse problem or is likely to give money away to
an undesirable recipient as soon as it is received). Parents of young children often wonder what other
clients typically direct in similar circumstances, but they never – in the
author’s experience – instruct their attorney to simply include whatever
directions are most common. Rather,
every parent of young children wishes to discuss alternatives and to design an
estate plan that reflects the types of judgments that parent would have made
had he or she been living. An estate planner who focuses on representing parents
of young children must be familiar with these and other options, and must be
able to make appropriate suggestions based not only on legal and practical
requirements, but also on an understanding of the values and goals of
particular parents. ________________________________________ This
publication is of general applicability and not specific to any set of
facts. Thus, it should not be relied
upon for any specific case or matter without further discussion. No attorney-client relationship is formed as
a result of your reading or replying to this publication, which is not intended
to provide legal advice on any specific matter, but rather to provide insight
into current developments and issues. Internal Revenue Service Circular 230 Disclosure. Please note that any
discussion of or advice regarding United States tax matters contained herein
(including any attachments hereto) does not meet the requirements necessary to
be a "covered opinion" as defined in Internal Revenue Service Circular
230, and therefore, is not intended or written to be relied upon or used and
cannot be relied upon or used for the purpose of avoiding federal tax penalties
that may be imposed or for the purpose of promoting, marketing, or recommending
any tax-related matters or advice to another party. THOITS, LOVE, HERSHBERGER & McLEAN 285
Hamilton Avenue, Suite 300 Palo
Alto, California 94301 Telephone: (650) 327-4200 Facsimile: (650) 325-5572 8030
Soquel Avenue, Suite 100 Santa
Cruz, California 95062 Telephone: (831) 425-4660 Facsimile: (831) 425-4543 |