When creating your estate plans, one detail you should consider is who you want to name as the beneficiaries to your estate. If you want to leave your assets to your minor children, learn about a few rules that you will need to follow to protect your nest egg and your children's financial future.
1. Avoid Inaction
Parents often put off creating their estate plans, either because they find the process overwhelming, they think they don't need to plan for their deaths yet, or they aren't sure how to begin the process. Avoid this type of inaction; if you pass away without a will or other final document in place, your assets will follow the California interstate succession law.
California law states that if you have children and no spouse when you pass away, your children will inherit your entire estate.
However, minor children cannot inherit financial assets. This means that the court will appoint an individual to act as the guardian of your child's inheritance. There's no guarantee that this individual will share your financial viewpoints or agree on how to spend money on your children.
For example, perhaps you would prefer that a portion of your child's inheritance go towards paying for private high school. The court-appointed guardian of your child's assets may not believe that their inheritance needs to go towards paying private school tuition, especially if they were never informed of your preferences.
2. Consider a Trust Fund
Often, a good way to leave your assets to your minor children is to set up a trust. Once you set up the trust, you can place your assets in the trust or name the trust as the beneficiary upon your death.
While you're alive, you maintain control of the trust. After your death, control of the trust passes to a specified guardian or conservator. The trust conservator must follow your trust's instructions and guidelines as closely as possible.
Your trust's guardian will handle the necessary tasks to disperse money to pay for care and expenses associated with raising your minor children. They will also distribute the balance of the trust once your children are adults.
A terrific advantage of a trust is that it gives you the ability to specify how you want the assets used and ultimately distributed to your children. For example, if you want some of the money in the trust to pay for your child's first vehicle, you can write this into the trust. You may also dictate that the trust should pay for experiences that you value, such as studying abroad or going on school trips.
You may have concerns about giving your children a large chunk of money when they turn 18; if so, you can specify that they will receive the balance of the trust in increments or designate a certain amount for specific expenses (like paying for college tuition or covering the down payment on a home).
Trusts are also an excellent way to ensure that a disabled child has ample assets to receive the care or assistance that they need throughout their entire life. It also protects them against unscrupulous individuals who may try to abuse their assets.
3. Assign Different Guardians
Your child's legal guardian after your death does not have to be the guardian of their trust. Sometimes, the best person to care for your child isn't capable of managing money according to your wishes. Even if your child's legal guardian is financially responsible, however, if you have another individual manage your child's inheritance, you can prevent a conflict of interest or potential misuse of the funds.
Ready to take action and get started on your estate planning? Contact Clara Yang Attorney At Law to schedule an appointment.