Estate Planning for Minor Children in Minnesota
It is paramount for parents to have an estate plan that not only takes care of their personal and financial matters but also addresses the well-being of their minor child or children. Creating an estate plan with minor children in mind has a host of variables quite different than one where all heirs are adults. A comprehensive plan will ensure that the children have the means for education, healthcare and other essential needs, as well as designate the people you would choose to oversee the caregiving and financial management needs of your kids. This guide will provide you with a comprehensive understanding of estate planning for Minnesota minors.
Estate Planning: Why Is It Essential for Parents with Young Children?
Estate planning for parents with young children involves setting up mechanisms to ensure that, in the event both parents pass away, their children will be cared for in the desired manner. Many parents overlook this critical aspect. Ensuring their children have the protection and support they need is vital.
The Last Will and Testament: A Fundamental Estate Planning Document
A last will and testament primarily directs how your personal property should be distributed after your death. Parents need to stipulate their desires, especially regarding their children’s inheritance.
Appointing a Guardian: Who Will Care for Your Children in the Event Both Parents Die?
Choosing a guardian for your child is one of the most critical decisions in an estate plan that will be indicated in the will. The guardian is entrusted with raising your child if both parents die or become incapacitated. Young parents, especially, need to decide who they would trust to raise their children if both parents are not around. If no guardian is designated, the state of Minnesota can appoint a guardian for your children instead. Legally designating someone you trust and discussing your wishes with them in regards to raising your children before appointing them as guardian is essential.
What Is a Trust and Why Is it Important for Minor Children?
A trust is a legal entity that holds and manages assets for the benefit of certain persons or entities, typically the minor child or children. A trust may be established to ensure that your child receives the inheritance at an appropriate age.
Parents should consider creating a trust for their children to ensure that there is money to provide for their care if both parents die. A child under the age of 18 is a minor and, as such, may not legally hold title to property. A trust is used to hold assets for the child’s benefit. The language of the trust would have instructions to provide for the children’s education, health and support.
Two Common Types of Trusts Parents With Minor Children Use
There are two basic trusts to consider. A revocable trust is created during a person’s lifetime and can be changed anytime by the trustmaker. A testamentary trust is created as part of a will. Neither trust needs to be funded until the person passes away, at which time the property of the decedent is placed in a trust if the will contains the correct instructions. An estate planning attorney will be able to structure this plan.
Trusts for Children from Previous Relationships
For parents with children from previous relationships, establishing a trust can ensure that all children, irrespective of their biological ties, are treated equitably. This ensures that the inheritance and trust assets are distributed according to the parent’s wishes.
What Is the Role of the Trustee?
The trustee is responsible for managing the trust assets for the child’s benefit until they reach the age of majority. They need to be financially responsible people who can manage the funds for the children. The trustee can be a family member but should not be the same person chosen as the guardian. Keeping these roles separate ensures that the guardian will not misuse funds. Another option is to hire a professional to serve as the trustee. Professional trustees, including banks or financial advisors, usually charge a percentage of assets. In some cases, estate planning attorneys serve as trustees for minor children.
How Do Children Receive Their Inheritance from the Trust?
It’s up to the parents to decide how their children should receive trust assets. They can mandate principal distributions at certain ages, like a certain percentage at age 20, another at 30 and the balance at 40. While the parent dictates the terms of distribution while the children are minors, the trustee will be the one to decide on distributions for food, health, education, or extracurricular activities.
Power of Attorney: Who Makes Decisions on Your Behalf?
A power of attorney is a legal document that allows a person to act on your behalf if you become incapacitated. There are different types of power of attorney, such as financial power and medical power. The former deals with financial matters, while the latter allows someone to make medical decisions for you.
Special Needs Planning: What If One of Your Children has Special Needs?
If you have a child with special needs, specific considerations should be included in the estate plan. A special needs trust is a tool parents can use to ensure that the inheritance does not disqualify the child from receiving essential government benefits. Estate planning for special needs children requires meticulous attention to detail to safeguard their interests.
Life Insurance: Ensuring Financial Security for Your Children
Life insurance plays a crucial role in estate planning for Minnesota parents with minor children as the proceeds can provide financial stability for the children in the unfortunate event that one or both of the parents pass away. Parents should purchase life insurance, since most young parents don’t have a lot of liquidity. Term policies are the least expensive and can be for ten, twenty, or thirty years, during which the policy is guaranteed if the premium is paid. Whole life insurance is another option. However, it is more expensive.
Beneficiary Designations: Make Sure That Assets Go Where You Want
Ensuring the correct beneficiary designation on assets, like retirement accounts, is vital when drafting an estate plan. Incorrect or outdated designations can result in unintended consequences, potentially sidelining the intended benefits for your minor children. If the intention is for the minor children to be beneficiaries, or if there is a remote chance a minor child might become an unintended beneficiary, different provisions will be needed in the plan.
In Conclusion: Key Takeaways
- Establishing an estate plan is vital for parents with minor children.
- Setting up a trust can protect a child’s inheritance until they reach a suitable age.
- Appointing a trusted guardian ensures that your children are in safe hands should anything happen to both parents.
- Power of attorney is essential for someone to make decisions on your behalf if you become incapacitated.
- Parents with special needs children should consider setting up a special needs trust.
- Life insurance is crucial for the financial security of your children.
- Always ensure that beneficiary designations are updated and correct.
- Trusts can be especially useful for parents with children from previous relationships.
To ensure that your estate plan aligns with your desires and the well-being of your minor child or children, schedule a call to speak with our team and learn more from one of our Minneapolis estate planning attorneys. Our team at Stone Arch Law Office can guide you through the intricate details and help you make the best choices for your family’s future.