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As a personal financial planner, one of the first things to talk about with clients who have minor children is how does their will work in regard to the children. I have found over the years that many people make assumptions that are not true. Assumptions that the child can be the beneficiary of an IRA or life insurance policy.
Gary Logan
Wes Shannon
Many people in America don’t have a will and many of the ones that do have a will haven’t updated it after major life changes such as divorce, birth of a child, remarriage, or death of a spouse. Having a will is one of the most important aspects of a financial plan. For parents of minor children, I cannot emphasis that too much.
There are two things that must be done for a minor child after a parent dies.
- Appointing a guardian of that child to make education, medical, and nurturing decisions for the child till age 18.
- Appointing of a guardian of the child’s estate to administrate the money and assets the child owns.
A minor child cannot inherit assets. The assets must be managed by an adult until the child reaches the legal majority age. Texas and most states consider age 18 to be the majority age.
The guardian of the child’s person is the surviving biological parent. Rarely, have the courts ruled against a biological parent. To do so is to be involved in a long and expensive legal dispute in the family law court outside of probate courts. All of this to be a warning to single parents from a divorce. Because you most likely will not have any say in your ex becoming the guardian of your child you can protect the child’s assets by having a testamentary trust in your will for the child and you can name who will be the trustee providing management of the child’s assets.
Testamentary trusts are trusts that do not come into existence until your death. They are used for a variety of reasons from protecting spouses, children, and generally being able to control assets after death. Providing for someone to manage a minor child’s assets till they are of an age to handle the assets themselves. A trust doesn’t have to give over control at age 18. I’ve seen trusts that disperses the money to the child over time like ages 25, 30, and 35 or upon graduations of college and graduate school.
Without having provided a trust for the minor child the courts will create a guardianship or possibly a trust, but all of this is very expensive, and the costs come from the assets left to the child. Also, a court-created guardianship is extremely limited in how the money can be invested. Primarily, in FDIC or government-backed fixed interest accounts. This was a big problem back when our interest rates were nearly zero. If you create the trust for the child, the trustee can have much broader options for investments.
Also, it is important to name a guardian for the child in the event that neither biological parent survives. Without doing so, the court is responsible for appointing a guardian and sometimes family members may fight over who that guardian should be. Whenever there is a fight, it is an expensive legal battle.
All of this should be done with a licensed state attorney in the state you reside. Each state has little differences in their laws, and the local probate court of your residence will have jurisdiction over your estate. I strongly recommend clients to do their will with an attorney. Online will kits and do-it-yourself plans are more vulnerable to court challenges. Part of being a responsible parent is having a responsible plan for the worst.
For those individuals who have a Certified Financial Planner™ working with them, I encourage you to give permission to both the financial adviser and the lawyer to talk freely about your situation. The two together can make sure your children and other heirs are provided for adequately.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.