When you have young children, you understand risk. You worry about your kids, how they feel, and what their futures will look like. If you are taking the risk of living without an estate plan, you’re potentially leaving your children and surviving spouse with more heartache than necessary.

Our Bethesda, MD financial planning firm knows that young families are busy. We understand that thinking about what might happen to minor children after a parent’s death may be the last thing you want to do. There is a reason we call our Protection Planning meeting “doom and gloom.”

If you do not have an estate plan, you are not alone. One study found that only four in 10 American adults have a will or living trust. Older adults are much more likely to be prepared. Still, you must get the proper documents lined up to ensure that your kids and surviving spouse have what they need. From living with funds for daily needs to planning for postsecondary education, creating an estate plan is critical.

Young families must also consider who could be the legal guardian of children if both parents pass. All too often, there is no plan in place when tragedy strikes, adding needless confusion and stress to an already difficult time. We’re here to help you face the need for an estate plan head-on with practical, expert advice.

Estate Planning Protects Minor Children

You needn’t have the funds for a trust or other long-term investment for your children to protect them with estate planning.

As mentioned above, a legal guardian is a critical component of any parent’s will, and this person should be selected as soon as possible. Consider the person’s values and parenting style, as well as their age, health, and living situation. Ensure they have the willingness and skill to raise your children by discussing the possibility with them. It can be a challenging decision to make, but it is one of the most important steps.

The fact that minor children cannot control inherited property like adult children can is another reason that implementing proper estate planning is critical. If minors are beneficiaries of direct gifts or through wills, they have no legal authority over the property until they are adults.

Your estate planning should detail how minor children gain access to your assets. In the event that you do not have a surviving spouse, avoiding the time-consuming and potentially costly probate process is vital to ensure your children and their guardian receive the estate assets as soon as possible.

Creating a living trust is typically the best avenue to guarantee your children are provided for. In addition to the aforementioned guardian, you will need to choose a trustee to handle the financial component. The guardian and trustee can be, but do not have to be, the same person.

You may also wish to protect your minor children with a life insurance policy naming the trust as beneficiary. This is especially useful if you do not have many assets that would be left behind to provide financial security for your children as they grow. It can also keep a surviving spouse supported until children are old enough to be self-sufficient.

Estate Planning for Education

If you die at an untimely age without a plan in place, your children may be left without education funds. There are various options for funding education, including a trust, as we’ve discussed previously. Funds put into a trust avoid estate taxes only when the trust is irrevocable, though. This means that the creator of the trust gives up all ownership and control over the funds. A third party takes on management, and the trust is its own entity for which you must file a tax return.

Another option is the 529 plan, through which earnings are tax-deferred and distributions are tax-free when used for qualified education expenses. Recent changes in tax law have expanded how and where 529 plans can be used, including K-12 tuition and student loan payments. Setting up a tax-advantaged 529 plan can not only fund your child’s education but set up a plan for generations going forward.

A 529 plan allows you to change the beneficiary an unlimited number of times as long as the person remains a qualifying family member. Such family members are extensive, which means one well-funded 529 plan, with leftover money, can further aid a different family member’s education.

This plan can be appealing for estate planning purposes as the contributions are removed from the overall estate. At the same time, the owner of the 529 plan retains control.

A financial advisor can help you plan your children’s education, analyze what you have, and what solutions are a good fit.

Don’t let another day go by without planning for your children, your spouse, and their financial security. We may not be able to predict the future, but we can help you plan a good path forward. We are here to help you get started with the critical task of estate planning. Get in touch with us today by sending a message online. You can also schedule a discovery call with one of our experienced team members.

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