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Estate Planning of Minor Children

Beneficiary Designations

It is shocking to me as a Pennsylvania Estate Planning Attorney how many young parents do not have the proper estate planning documents.

Regardless of the amount of assets avaialble, it becomes very important to have a proper estate plan as soon as you have a child. Failure to have a proper estate plan can cause many different problems for the minor child and surviving family members.

On this page, we will discuss the problems often seen with regard to beneficiary designations.

Who Will Manage Your Children's Money?

Often parents designate their minor children as contingent beneficiaries on life insurance policies and retirement accounts, but the law of Pennsylvania prevents a brokerage house or insurance company from turning over money to a minor child.

For example, if both parents of a minor pass away in a car accident with the father holding a $200,000.00 life insurance policy which lists his wife as a primary beneficiary and the child as a contingent beneficiary, the insurance company would be obligated to pay $200,000 to the child. Given that the child is under 18, the insurance company is then required to turn this money over to the Court for establishment of a guardianship account.

The Court would appoint a guardian to be in charge of the money for the minor child, which would then be held in a guardianship account. The guardian may be a family member but it can also be an Attorney or Accountant appointed by the Court; however,

  • There would be significant restrictions on how the money could be invested; typically the funds are placed into a savings account at a bank.
  • There would also be restrictions on how the money could be withdrawn from this account.
  • Each year the guardian will be required to report to the Court as to any activity on the accounts. This can become rather expensive and the fees for doing so are taken from the children's account.
  • When the minor children turn 18, the guardianship account is closed and a check is given to the 18 year old child.

This is perhaps the most significant problem with not having a proper estate plan - most 18 year olds would be ill prepared to handle any amount of money and under this circumstance they would be provided with their entire share of the estate at once.

Proper Estate Planning is the Key

This problem can be avoided by preparing a Last Will and Testament that contains a Minor's Trust and designating the trust as the contingent beneficiary of the life insurance policy. A Minor's Trust is established to appoint a trusted family member to be the Trustee to manage the money for the minor children. Instructions can be given to the Trustee as to how this money can be used and it can also provide instructions to hold onto the money even after the minor in question turns 18.

For example: a common Minor's Trust provision would give the Trustee the ability to pay for the help, support and maintenance of the minor child at the discretion of the Trustee. Typically there is also a provision that provides for the distribution for the balance of the trust over a period of time, for example, 1/3 at age 21, 1/3 at age 24, and 1/3 at age 28.

By setting up this Minor's Trust, the Court is not involved in the management and distribution of the funds and more importantly, the minor child does not receive the entire balance of the account at age 18 but instead it is distributed over time at a more mature age.

The death of parents with minor children is a terrible event. The minor children will have to learn to deal and cope with the loss of both of their parents. Without the parents having a proper estate plan in place this process becomes even more difficult for the minor children. For this reason it is very important that all young parents have a proper estate plan in place.

If you are interested in scheduling an appointment to discuss estate planning or to prepare estate planning documents please contact our office at 724-835-8440 or visit our easy-to-use contact form right now!

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