Your Will and Special Arrangements for Young Children
It is surprising to me as an Estate Planning Attorney how many young parents do not have the proper estate planning documents.
Regardless of the amount of assets, 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. The most common problem that our office sees with families that have minor children is lack of a Minor's Trust.
Who will manage your Children's money if you pass?
The law in Pennsylvania provides that any money due to a child under the age of 18 must be paid into a guardian account which is controlled by the Court. What this means is that if a minor child is entitled to money from the estate of their parents, this money is paid to the Court, held by the Court, and invested by the Court until the minor child attains the age of 18. Typically there is a fee for handling and managing this account which is called a Guardianship Account.
When Parents do not have a Will...
Assume that you have a Mother and Father with two minor children, ages 5 and 10. The parents have not prepared or executed a Last Will and Testament. The parents are involved in an automobile accident and unfortunately both parents pass away.
Given that in the above example the parents did not have a Will, all assets of both parents would pass to their minor children. Given that both children are under the age of 18, an estate would be opened and the Court would appoint a guardian to be in charge of the money for the minor children. This money would 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. There would be significant restrictions on how the money could be invested and 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There would also be restrictions on how the money could be withdrawn from this account. The Court is concerned primarily with preserving the money for the minor children until they attain the age of 18 years. Each year the guardian will be required to report to the Court as to any and all activity on the accounts. This process of reporting to the Court 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. This is perhaps the most significant problem with not having a proper estate plan. Most children who are eighteen years of age 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.
What can be done about it?
This problem can be avoided by preparing a Last Will and Testament that contains a Minor's Trust. The Minor's Trust would be 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 for the minor children and it can also provide instructions to hold onto the money even after the children turn age 18. For example, a common Minor's Trust provision would include the Trustee having the ability to pay for the health, support and maintenance of the minor children 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.