Estate Planning with Minor Children
Individuals and couples with young or teenaged children face unique hurdles in estate planning. In truth, many of these considerations apply equally to individuals with children who perhaps have reached the age of majority (eighteen years in Missouri), but are still not fully independent. At issu
Legal Minority vs. Youthful ImmaturityLegal Minority: Inability to Own and Control Property. Individuals under the age of eighteen cannot own property and cannot undertake many of the tasks associated with property ownership. Regardless of the very obvious concerns of actual maturity and experience, this legal limitation of minority creates very apparent hurdles for families with younger children. In the event that property is transferred to children as part of an estate plan, without further clarification or planning, a court-appointed conservator would be designated to hold the property. While this indeed offers some actual protection to the child's eventual legal right to the property, it creates some very difficult and problematic issues with respect to control and desired use of the relevant property. Immaturity: Sometimes the Bigger Issue In addition to the legal incapacity of a minor child to own and control property, there are very practical concerns with a young person's lack of experience and their likely financial, emotional and social immaturity. Where proper planning has not occurred, a probate conservatorship would be created, as discussed above. However, once the youngster reaches the ripe age of eighteen years, they will actually get the property--perhaps an even worse outcome than the conservatorship. This generates numerous concerns due to the child's general immaturity, their likely susceptibility to undue influences and their station on life. Many children of this age are yet to even graduate from high school, much less prepared to prudently use any amount of significant money or property.
Caring for Children "If Something Happens"Legal Guardianship. As every parent of a minor child has surely asked themselves, "Who will take care of the kids if something was to happen to me (or us)?" If this issue is not addressed directly, a court will determine the most appropriate individual to assume guardianship of children. As might be expected, this can result in difficult disputes among surviving family members and an emotionally traumatic experience for children, and ultimately it may result in guardianship granted to an individual or couple whom the parents would not have selected or approved. Maintenance and Needs Associated with Child Rearing. As every parent understands, the cost and effort to raise children is tremendous. To state the obvious, children are not self-reliant or self-supportive. Accordingly, in the event of a parent's death (or incapacity) there must be in place a means of providing for the needs of their children. These needs often include daily maintenance, health care, educational and recreational expenses, and college tuition). Appropriate planning often involved a revocable living trust or a testamentary trust--each of which place a designated trustee in charge of making important financial decisions.
Tax ConsiderationsMany parents, grandparents or other family members wish to provide gifts to minor children, while retaining some control over the use of those funds. Perhaps dog-earing a monetary gift for educational or professional purposes, a family member desires to give a gift to a child, but is reluctant to do so without some formal designation or restriction on its use. Such giving raises some significant tax concerns. In order to qualify for an annual exclusion from gift tax, the gift must be of a "present interest," and a standard transfer in trust would not qualify for such tax treatment. If not planned for properly, the donor could end up with an unexpected tax bill, presently or as part of their ultimate estate tax liability.
Tools for Estate Planning with Minor Children1. Nomination of Guardianship. Proper estate planning should include a clear directive nominating a successor guardian to essentially step into the parenting shoes left empty by the decedent. This formal directive is often included in a will but may also be a standalone documents. Court approval will always be a required part actual appointment of a guardian. 2. Transfer to Custodian Account. Funds can be transferred to a custodian for the benefit of a minor child. Such a transfer can occur during the donor's lifetime or can be made by the personal representative of the donor's estate. The Missouri Transfers to Minors Law (MTML) governs these types of transfers. The property held in a custodial account must be used by the custodian for the benefit of the minor child and the funds must be prudently invested. 3. Testamentary Trust. A testamentary trust is a trust which only comes into existence in the event that certain situational criteria are met--usually the death of both parents while the children are under a designated age, perhaps twenty-five or thirty years old. The specifics of the existence and duration of a testamentary trust are determined by the parents and detailed in the relevant provisions of the parent's will. A testamentary trust is typically embodied in a will, in the form of a separate section of that document. It is not usually a separate agreement or document in and of itself. 4. Irrevocable Trust for a Minor: Avoiding Taxation on Gifts to a Minor. When an individual gives a gift to a minor child, they often want to create an explicit limitation or restriction on the use of those funds or property. By transferring the property/money in trust, these desires for control or direction are readily accomplished. However, if not structured properly, such a gift will not qualify for the donor's annual exclusion from gift tax. 5. Life Insurance Policy. An adequate life insurance policy can readily provide the needed assets to provide for the ongoing needs of younger children. For younger families, a testamentary trust is very often funded primarily with the proceeds of a life insurance policy.