In our last installment, we explored estate planning for young married couples. In this article, we move forward to the next stage, planning for young parents, and the unique challenges to consider as a family grows.

For many young parents, the value of their estate (what they actually own) is likely still modest, often offset by debt such as a mortgage, student loans, or credit cards. Their largest assets may be retirement accounts, employer-provided life insurance, or an anticipated inheritance. The main planning concern, however, is ensuring for their children, for both their physical well-being and financial protection, if both parents were to pass away.

Leaving tangible assets to minors can create complications. For example, giving a car to a two-year-old or entrusting an heirloom item of jewelry to a teenager is impractical, and the fiduciary for the estate would instead turn those items over to the guardian of that minor, with the expectation that the property will not disappear before the minor is able to receive it.

It would also be problematic to leave real estate to a minor, since minors cannot own property. In such cases, guardianship would likely need to be established to hold the property, though it might be possible for a guardian to obtain a mortgage against the property if funds were needed to support the minor’s care. Leaving cash or investments to a minor is a bit simpler. Investments can be sold or set up in a custodial account and cash can be used to create a Uniform Transfers to Minors (UTMA) account or a 529 Plan to ensure funds are set aside specifically for education. Parents (or grandparents!) would be wise to establish a 529 Plan as early as possible to maximize growth potential.

Choosing a guardian may be the most challenging decision in a young couple’s estate plan, since it involves asking someone to take on long-term responsibility. Parents may be the natural choice to serve but keep in mind that as the couple gets older, so do each of their respective parents, and the parent’s long-term ability to care for a grandchild may be a concern. Siblings may be a practical option, especially if they live nearby and children would not need to change schools. However, it may also lead to challenges if the child has access to resources (such as life insurance) that are not available to the natural children of the guardian, and that may lead to hard feelings. The reality is that there is rarely a perfect choice in selecting a guardian. Sometimes the goal is to pick the least problematic option for a situation everyone hopes will never occur.

Even with limited assets, a young couple should consider establishing a Trust. The terms of the Trust can provide for a child’s well-being and education even in adulthood. In making the choice of who should serve as Trustee (assuming both spouses have died), the couple would be wise to look for someone OTHER THAN the chosen Guardian, reducing the risk that the Guardian is tempted to use the funds for their own children’s needs.

A typical estate plan for young parents generally includes:

• Wills, often with the same provisions, naming guardians in case of a common accident, designating specific bequests, and directing remaining assets to a Trust for the benefit of their children; Each spouse would serve as executor and at least one alternate should be identified in case the chosen successor has died or is just unable to serve.
• Durable Financial Powers of Attorney, allowing one spouse to handle matters like finances, banking and tax matters if the other becomes ill, incapacitated, or simply unavailable. Naming alternates remains a challenge, but similar considerations apply when selecting an executor or guardian, who is expected to step in, and is equipped to handle the responsibilities.
• Health Care Directives such as a Living Will, Health Care Power of Attorney, and HIPAA Authorization remain equally important. For young parents, it can be especially valuable to have it explicitly clear that a particular sibling of one spouse would be the decision-maker, helping prevent interference from well-meaning but potentially conflicting family members.

Getting these documents in place early is important, as it protects against the sudden, unexpected death or incapacity of a spouse. While each spouse is alive and capable, any of the estate planning documents can be updated as family circumstances change. For example, the first version of a Trust may delay distribution of a child’s share (after both spouses pass) with pay-outs such as half at age 30 and the balance at age 35. As children grow and mature, revisiting the terms of the Trust is important. Some parents may choose to distribute a share earlier for a child who is financially responsible, while for others who are less financially astute, the plan may delay distributions or even keep the Trust in place for that child’s lifetime. The key is to create a solid plan and modify it over time as new circumstances dictate.

If you would like to schedule a consultation to discuss your estate planning needs, our team is here to help.