Feb 3, 2013

Minor children? Here are the steps you need to take to protect them

The importance of life insurance for parents with young children cannot be overstated. However, insurance is just one part of the story. To ensure your child's financial security, you need to properly plan for how the proceeds will be distributed to your child, as well as for how your child's personal needs will be met. That's where estate planning comes in.

Most couples name one another as the beneficiaries of their life insurance policies. Children may be named as primary beneficiaries, or contingent beneficiaries after the spouse. Either way, your minor children are not permitted to receive the death benefit until they are 18 years old. Of course, if your experience is anything like mine, you would be hard-pressed to find an 18-year-old with the maturity and knowledge to handle a windfall responsibly.

Although your life insurance proceeds will not go through Florida Probate, the Florida Probate Court will have to be involved if you pass away without naming someone as trustee to will manage the monies for your child. A guardianship would have to be commenced, allowing the court to name someone to serve as the guardian of your child's money. However, the money will still be released to your child when he/she turns 18.

There is a better solution: Create a Trust for the benefit of your children. The Trust may be created within your Will, or within your Revocable Living Trust. You name a Trustee who will be responsible for managing the monies in the Trust for your children's benefit. You then name the Trust as the beneficiary or contingent beneficiary of your insurance policy; then, the proceeds will be paid into the Trust if you pass away (assuming the primary beneficiary is the Trust, or the primary beneficiary predeceases you and the Trust was the contingent beneficiary). This arrangement ensures that your child does not automatically get access to the funds when he turns 18.

You may state in your Trust at what age, and how, he receives the balance. Many of my clients want their children to receive the balance at age 25 or 30, or perhaps half at 25 and the rest at 30. Other clients prefer to make the Trust totally discretionary, managed by someone in whom they have great faith, and allowing that person to decide when the child should receive the money. This is a prudent tactic, particularly if your beneficiaries are very young children. After counseling thousands of parents over the years, one thing is clear: No parent can be certain of how his youngster will turn out. Without exception, my clients have done the best they can, yet some have children who have turned out to be criminals, or diagnosed with severe mental illness. Other clients have children who have turned out to be exceptionally independent and mature at a young age. As Anne Frank wrote, "Parents can only give good advice or put them on the right paths, but the final forming of a person's character lies in their own hands."

The Trustee should obviously be someone who you trust implicitly and ideally is familiar with your child's needs and understands your values. The person need not be the most financially sophisticated person, but should  know when and how to utilize professional help, be it lawyers, financial advisors, accountants, etc.

Also, the Trustee need not be the person with whom you want your child to reside in the event of your death. Frequently parents are more comfortable having the jobs to different people. The person you name as the "Guardian of the Child's  Person" must be designated in your Will. Obviously, the guardian will usually be the child's other parent, but you should name backups. The Probate Court gets final say on the guardian, based on the best interest of the child, but will give great weight to your proposed designee.

In the event that your designated Trustee or Guardian is able to serve, you should name a Successor Trustee(s) and a Successor Guardian(s).

As you can see, estate planning is for young families as much as older people, albeit for different reasons. While young parents may not have accumulated significant assets, to put it bluntly, they are usually worth more dead than alive in purely financial terms. And it goes without saying that there is nothing as valuable, or worth protecting, than our children. Contact our Florida estate planning attorneys for expert assistance.

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