For many people, the first time they start thinking about an estate plan is when they start to have family members that depend on them financially – typically, a spouse or a child. Let’s take, for example, a young married couple with young children. The couple may think they need a will, but they might not know how a will can, or cannot, help them accomplish their goals for their family.
The couple has two major concerns when thinking about their estate plan, which are common concerns for couples with minor children. First, who is going to be the guardian of their children if they both pass away? Second, how are their children going to be provided for financially after they are gone?
With respect to the first question, executing a will allows the couple to name a guardian for their young children if they both pass away while their children are minors. When choosing a guardian, you may want to consider geographic location, the age and health of potential guardians, religion, and other values that are important to you. Parents should have discussions with their families and friends to find the best potential guardian that is willing and able to raise their children in accordance with their wishes.
As for the second question, executing a will also allows the couple to specify how they want certain property distributed after their death. For example, a common distribution provision that our couple might use is that the first spouse to die leaves their property to their surviving spouse, and upon the death of the surviving spouse, the property is held in trust for their young children. Trusts are commonly used for couples with young children because it allows them to leave assets to their children in the care of someone else, a “trustee”, who can manage the assets for them. One benefit of using trusts is that it allows the assets to be held for a beneficiary beyond the age of 21. If a trust is not created, all of the assets must be distributed to the child before attaining age 21. There are many different types of provisions that can be included in a trust. It is important to discuss with your attorney what provisions can be included to help accomplish your goals for your children.
A common misconception many people have about wills is that the will accomplishes all of their estate planning goals on its own. A will only controls what is referred to as “probate” assets. For example, a will does not control the distribution of accounts that have beneficiary designations, such as life insurance policies, retirement accounts, and bank accounts. These types of accounts are often a large percentage of the assets that a person owns. If our young couple creates a trust for their children in their wills, the couple will want to update their beneficiary designations to name the trust created under their wills as the contingent beneficiary so that these types of assets are controlled by the terms of the trust. An estate planning attorney can instruct you on how to list the beneficiary designations on your accounts so that your accounts are paid out in accordance with your intent.
A will is not the only estate planning document that most young couples will want to execute. Estate plans often involve drafting revocable trusts, marital property agreements, or incapacity documents such as financial and health care powers of attorney. Contact an estate planning attorney to assist in drafting documents that accomplish your goals for your family.
