In Massachusetts, simple estate planning for parents of minor children can be boiled down to three items on a “to do” list.
Every day, I write down the Top Three Things I need to get done that day. Schedule a doctor’s appointment. Call a client. Pay a bill. Life stuff and work stuff. Whatever are the three most important things for the day.
Estate planning for young families can be boiled down to a Top Three To Do List, too. You won’t get them all done in one day, but you should have them somewhere on your mile-long To Do list, and move them into top position sometime soon.
1. Life Insurance
Most employers provide some form of life insurance, equivalent to a year or two of lost income. This is a good start. If your family wouldn’t have a significant financial resource to tap into (such as your retirement accounts or a trust fund), then you should supplement your employer’s plan.
You don’t have to look far to find advice on how much life insurance you need. Try not to get overwhelmed with the options. Consider the minimum amount your family would need if you were to pass away. If you are the primary caregiver, how much would it cost to hire a nanny or babysitter until the kids are older? If you are the primary income earner, how much would your kids need until they live independently? Answer those two questions, and you know how much you need. (you can buy more if you like)
If you decide to buy a life insurance policy that would increase the value of your estate to over $1,000,000, you should speak to an estate planning attorney before applying for the policy in order to protect it from estate tax.
2. Trust Appointing a Trustee for Your Children’s Money
If a minor receives a substantial amount of money as an inheritance, a Massachusetts Probate Court is likely to appoint a conservator for the funds. A conservator is a person who has control over the investment and disbursement of the funds while the child is a minor. Conservators must submit annual reports to the court. The child’s guardian may also serve as a conservator, although she must still file a petition for conservatorship along with her petition for guardianship, and she must submit a report to the court annually.
Most importantly, and problematic for parents, is that the court-appointed conservatorship ends when the child becomes 18 years old. For those with significant estates, this means that their children will receive a substantial amount of money at a young age. Many parents prefer to craft a trust that funds the child’s college or provides a down payment on a home before it disperses the rest of the trust principal outright.
3. Will Naming a Guardian for Your Children
Naming a guardian in a will serves several purposes. First, it serves to inform your children, family and friends of your guardianship wishes. This will eliminate confusion about what you would have wanted.
Second, it informs the court of your choice. The court will strongly consider your choice of guardian and will appoint that guardian unless it determines that such an appointment is not in your children’s best interests. For example, if you name your mother in your will but she becomes ill or too frail to care for the children, the court will consider your alternate choice for guardian.
Third, naming a guardian in your will provides a more stable transition for your children. If potential guardians disagree about your wishes and pursue their claims in court, then your children may have to wait months until a permanent guardian is appointed.
Having trouble deciding on a guardian? Read more.