Young families have many demands on their resources of time and money. It is very difficult to balance all of the needs of the family within the limits of available resources. On the other hand, it is very easy to assume that neither parent will be disabled or die. That assumption leads many to put off any attention to estate planning to provide for their family in the unlikely event of the death or disability of one or both parents.
But it is obvious that everyone runs the risk of a sudden event that might disrupt the ability to continue to provide for young children. No one has any assurance that they will receive a warning signal that will give time to make proper arrangements for young children. This is the reason that it so critical that young families give priority to making estate planning arrangements to assure that children are cared for in such an event.
The first step is a careful evaluation of the types of assets owned by the young parents, and the value of those assets. In most cases, a young family will not be exposed to the risk of estate taxes. But if so, appropriate steps need to be taken to evaluate that risk, and provide protective strategies to minimize the amount of any estate tax liability.
The next step is to provide for the possibility that only one spouse will be disabled or die. In that event, appropriate designation of an agent under a Durable General Power of Attorney should be made so that the agent can make financial and health care decisions for the disabled parent. And in the event of the death of a young parent, measures should be taken to protect the surviving spouse from the stress, inconvenience and expense of a probate proceeding, if possible. The primary goal at this point is to protect the ability of the surviving spouse to continue to provide for the welfare of the children. In addition to properly drawn estate planning documents, these arrangements would include appropriate levels of life insurance, and proper attention to the beneficiary designation on any life insurance policies, I.R.A. or Section 401(k) plans, or other assets with beneficiary designation provisions.
The final step is to provide for the possibility that both young parents will be disabled or die. Then the estate planning documents must designate:
The individual(s) who would be named to act as the Guardian for the children to provide for the day-to-day physical care for the children.
The individual(s) who would be named to act as Trustee of a trust that would hold substantially all assets for the benefit of the children. The Trustee would have the authority to invest the assets wisely, and to use the assets to provide for the health, education and welfare of the children. This would typically include college or other higher education that may be appropriate. The trust could continue until the youngest child attained a certain age, at which time the trust would terminate and the remainder of the assets in the trust would be distributed to the children. This distribution could be immediate, or in installments. In some cases, it is appropriate for the trust to continue to provide protection for the assets of one or more of the children for an extended period of time.
The individual(s) who would be named to act as Executor (Personal Representative, or "P.R."). The P.R. would have the responsibility to handle all arrangements to finalize the financial affairs of the deceased parents, and to distribute the remaining assets of the estate to the Trustee to be held as described above for the benefit of the children over the long-term.
The designated Guardian, Trustee and Personal Representative can be the same person. However, in some cases, families prefer to designate different persons to handle different parts of the responsibility to take advantage of special abilities.
Even young parents should designate an agent under a Durable General Power of Attorney to be authorized to make health care and financial decisions in the event that one or both parents are disabled.
Young parents should also decide whether they want to sign a Health Care Directive to provide instructions to their physicians regarding the use of artificial life support in the event of a terminal illness or permanent unconscious condition.
In many respects, estate planning is more important for a young family because of the need to provide for the benefit of young children.