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Estate Planning
for Parents of Young Children
By Stewart Richardson
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.
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