Having children can change the way you think about estate planning. Your plan is no longer only about deciding who receives your property. You may also need to decide who would care for your children, who would manage their inheritance, and how financial resources should be used for their education and other needs.
There are several specific strategies for estate planning with children. Parents often use a combination of wills, trusts, beneficiary designations, life insurance, and powers of attorney to create a plan that protects their children if something unexpected happens.
At Koch & Associates, we help Illinois parents create estate plans based on their families, finances, and long-term goals. Understanding the following considerations can help you prepare for a productive conversation with an estate planning attorney:
Name a Guardian for Your Minor Children
For many parents, choosing a guardian is one of the most important parts of estate planning.
A guardian is someone who may be responsible for caring for your minor children if both parents die or are otherwise unable to care for them. Parents can use their wills to identify the person they would like to serve in this role.
Think beyond simply choosing the relative or friend you are closest to. Consider the person’s parenting style, values, age, health, financial circumstances, location, and existing relationship with your children.
It can also be helpful to identify an alternate guardian in case your first choice cannot serve when the time comes.
The court ultimately appoints a guardian, but documenting your wishes provides important guidance about whom you believe should care for your children.
Decide How Your Children Should Receive Their Inheritance
Leaving assets to an adult beneficiary can be relatively straightforward. However, estate planning for minor children requires additional considerations.
Minor children generally cannot independently manage a substantial inheritance. Without appropriate planning, additional legal steps may be necessary to manage assets on their behalf.
There is also the question of what happens once a child becomes an adult. Even though an 18-year-old is legally an adult, you may not want your child to receive a large inheritance all at once. A thoughtful estate plan can address both these issues.
Consider Creating a Trust for Your Children
A trust can give parents greater control over how and when their children receive inherited assets.
Instead of leaving an inheritance directly to a child, assets can be held in a trust and managed by a trustee. The trustee is responsible for managing and distributing the trust property according to the instructions established in the trust.
For example, a trust may allow money to be used for a child’s:
- Education
- Healthcare
- Housing
- General living expenses
- Other needs identified by the parents
Parents may also establish instructions for when children receive control of their inheritance. Instead of receiving everything at once, assets could potentially remain in trust until a certain age or be distributed in stages.
There is no single distribution schedule that is right for every family. An estate planning attorney can help you consider your children’s ages, the value of your estate, and your concerns when developing an appropriate strategy.
Choose Your Trustee Carefully
The person you trust to raise your children does not necessarily have to be the same person who manages their inheritance.
These are two different responsibilities.
A guardian focuses on your child’s care and upbringing. A trustee manages assets held in a trust and follows your instructions when making distributions.
One person may be well suited for both roles, but separating them can sometimes make sense. When choosing a trustee, consider the person’s financial responsibility, judgment, reliability, and ability to follow the terms of the trust.
Discussing these responsibilities with the people you are considering before naming them can also help prevent surprises later.
Review Your Beneficiary Designations
Your will or trust is only one part of your estate plan.
Certain assets may transfer according to a beneficiary designation, rather than instructions contained in your will. Examples can include life insurance policies and some retirement accounts.
That makes reviewing beneficiary designations particularly important after having a child.
Beneficiary designations should be coordinated with the rest of your estate plan. Simply naming a minor child directly as a beneficiary may create complications because the child cannot necessarily manage those assets independently.
An estate planning attorney can help you understand how beneficiary designations fit with your will, trusts, and overall plan.
Consider the Role of Life Insurance
Life insurance can be an important financial planning tool for parents, particularly when children depend on their income.
The proceeds of a life insurance policy may provide financial resources for housing, childcare, education, everyday expenses, and other needs after a parent’s death.
Estate planning and life insurance planning should work together. Parents should consider who is named as the policy’s beneficiary and how the proceeds would be managed if the intended beneficiaries are children.
For example, a trust may sometimes be incorporated into a broader strategy for managing funds intended to support minor children.
Plan for Incapacity, Not Just Death
A strong estate plan should also address what happens if you are alive but temporarily or permanently unable to make certain decisions yourself.
Powers of attorney can allow people you trust to handle financial or healthcare matters on your behalf according to the authority granted in the documents.
For parents, incapacity planning can be especially important. Your household may depend on you to manage bills, insurance, property, financial accounts, and many other responsibilities.
Planning ahead can help make sure someone has appropriate legal authority if an accident or serious illness leaves you unable to handle these matters yourself.
Consider Whether a Child Has Special Needs
Families with a child who has a disability may require additional estate planning.
Leaving assets directly to a child who receives or may eventually receive certain means-tested government benefits could affect eligibility. A special needs trust may be one option for providing financial support while addressing concerns related to benefit eligibility.
Special needs planning can be complicated, so parents should work with an attorney who can evaluate their child’s circumstances and explain how different estate planning decisions could affect the family.
Update Your Estate Plan as Your Children Grow
Estate planning with children is not something you should necessarily complete once and never revisit.
Your family’s needs can change dramatically over time. The guardian you selected when your child was an infant may no longer be the right choice 10 years later. Your financial circumstances may change, your children may become adults, or your relationships with the people named in your documents may evolve.
Consider reviewing your estate plan after major events such as:
- The birth or adoption of a child
- Marriage or divorce
- The death or incapacity of a guardian, trustee, or other person named in your plan
- A significant change in your assets
- Purchasing a home or other substantial property
- Starting or selling a business
- A child reaching adulthood
- A major change in your child’s needs
Periodic reviews can help make sure your documents continue to reflect your family and your wishes.
What Happens If You Have Children but No Estate Plan?
Dying without a valid will is known as dying intestate. In that situation, Illinois intestacy laws determine how property subject to those laws is distributed.
More importantly for parents of minor children, failing to document your preferences means you lose an important opportunity to tell the court whom you would want to care for your children.
Without trusts or other planning tools, you also have less control over how an inheritance intended for your children is managed.
Estate planning allows you to make many of these decisions in advance instead of leaving your family to address them during an already difficult time.
What Estate Planning Documents Should Parents Consider?
The exact documents you need depend on your circumstances. However, an estate plan for parents may include a last will and testament, one or more trusts, powers of attorney, and coordinated beneficiary designations.
The goal is not simply to accumulate legal documents. Each part of your plan should have a clear purpose and work together with the others.
For example, your will might nominate a guardian, while a trust establishes how your children’s inheritance should be managed. Your beneficiary designations may then need to be structured so they support the strategy established through the rest of your estate plan.
This coordination is one reason personalized estate planning can be particularly valuable for families with children.
Create an Estate Plan That Protects Your Family
Who should care for my children? Who should manage their inheritance? At what age should they receive assets? How would they be financially supported if you were no longer there?
You do not have to answer these questions alone.
Koch & Associates is a fifth-generation law firm with more than 50 years of combined legal experience. Our attorneys help Illinois families create personalized estate plans involving wills, trusts, powers of attorney, and other planning strategies.
In keeping with our “Attorneys for Life” philosophy, we can also help you revisit your plan as your children grow and your family’s needs change. Attorney David O. Koch provides legal services directly in both English and Spanish.
If you have children and are ready to create or update your estate plan, call Koch & Associates at (312) 664-4328 today to schedule a consultation. We can help you understand your options and create a plan designed around the people who matter most to you.
