Those with minor children rightfully concern themselves with the many "what if's" should both of us die. The easy part is, in my mind, is executing a will nominating guardians for your children should both parents die. It may take the parents several hours of kibitzing in the kitchen to agree on the guardian but the mechanics of nominating a guardian are rather straightforward (a simple paragraph slipped into the last will of both parents). The more difficult planning issue concerns the financial welfare of the children should both parents die.The traditional planning tool creation of a testamentary trust designed to hold and distribute assets as needed while the children or minor, and even till much later in life should you so desire. Let's say each child in expected to inherit several hundred thousand dollars for their parents' estates if both were to die. One advantage of a testamentary trust is that it can control distribution of the assets to the children for as long as the parents desire (limited by the rule against perpetuities in some jurisdictions). Coupled with such features as a spendthrift clause, the testamentary trust does give some added protection against the squandering of the children squandering their inheritance upon reaching majority. The downside of creating the trust is not all that great. You do face added attorneys fees in drafting the trust. Also, the trustee will need to open a special trust account with a financial institution to hold the funds and to file annual income tax returns. In my mind, these are minor when weighed against the benefits.
Still, some people prefer not to bother with trusts. They have faith in their chosen guardian (often a sibling) to use the funds wisely for the benefit of their children. If the expected inheritance is modest, that may be another reason for wishing to do minimal planning in this area. Is there a quick and easy alternative to the testamentary trust? Yes, designation of custodian in your will under the Uniform Transfer to Minors Act. Here are links to the UTMA for several states:How does one designate a custodian for the inheritance to be received by minor children? "[B]y naming the custodian followed in substance by the words: 'as custodian for [name of minor] under the Pennsylvania Uniform Transfers to Minors Act.'" Penn. Stats. Ch. 53, Section 5302(a). Under this arrangement, a custodial account will be set up by the executor of your estate in the name of the custodian designed in your will for each of your children. The downside is that any funds remaining in the account when the child reaches the statutory age are transferred free and clear to the child. See chart at bottom of this page.
5 comments:
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Great post! A Will is something that many of us put-off doing anything about, because confronting our own mortality is a scary thought. However, without a Will you can subject the ones you love and leave behind many months of legalities and costs that could have so easily been taken care of.Look after your family and estate with the help of The Northern Beaches Lawyers, city experience by the beach! Testamentary Trust Lawyer
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In some states a custodian can specify the age—18, 21, or even older—when the child will take control of the account (also called the "age of majority"). It is important to do this when you open the account, since you cannot make any changes later. Be sure to ask a Financial Consultant about the laws in your state. See more here: how to open a custodial account .
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