If you have minor children, you know that estate planning is crucial. You need to ensure that your children are provided for both financially and emotionally should the worst happen to you. The two most important parts of planning for minors are choosing a guardian and providing financial support through use of a trust.
Choice of Guardian. This is something that requires some thought. Who would you want legally responsible for your child's care if you were gone? After you choose a guardian, you should also choose a minimum of one backup, in case something happens to your preferred guardian. There are a lot of things to think about: family dynamics, geographic location, and your child's current relationship with your preferred guardian. The most important thing is choosing someone so that family conflicts don't arise later.
Financial Support. If you were to pass away while your child was still a minor, you obviously wouldn't want them to have access to large sums of cash. Many parents deal with this problem by leaving their minor children's inheritances in a UTMA or UGMA account. The problem with UTMA/UGMA accounts is that they are inflexible. Once your child turns 18 or 21 (depending on the account), he or she has unfettered access to the funds no matter what his or her life situation. Perhaps worse, if the custodian of a UTMA or UGMA account passes away while the child is still a minor, the value of the account may be subject to tax.
A better alternative is to leave the assets for your minor child in a testamentary trust. A properly drafted testamentary trust can avoid the assets being subject to tax if the custodian dies. It can also provide flexibility to ensure that your children have access to funds when they are necessary, but don't get access to too much too fast. This trust can terminate at any age you so choose. Or, if you prefer, you can even structure a testamentary trust to provide lifetime protection for your child, providing him or her access to the funds when needed, while also providing a financial safety net that will be preserved even if your child suffers through a nasty divorce or bankruptcy.
This was meant as a short introduction to some of the issues involved with planning for minors. If you have additional questions or want more details, don't hesitate to contact me.
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