If you have a younger family, no matter what age they are, you probably spend a good part of your day thinking and planning and doing everything possible to smooth the way, keep them safe, and help them grow. But what if you weren’t there?

Ensuring that underage children will be taken care of in every way requires more planning. They will need a guardian in case something happens to both parents. If you are co-parenting after divorce, you may still want to appoint a guardian in some circumstances.

To give your children the benefit of your thoughtfulness, your plans for them, and your advice until they are securely launched into adulthood, setting up a trust for any inheritance is the most flexible and comprehensive instrument.

A recent Bureau of Labor Statistics study found that 33% of people receiving an inheritance had spent it all within two years. While underage children will likely not have access to funds, a trust can set certain milestones for releasing funds or heirlooms. This can be both an incentive and a safeguard.

 

Appointing a Guardian

If something happens to both parents, you’ll need to have a guardian for your children. The legal guardian, or conservator, is an adult who has legal authority to make all decisions for the child. The choice of a guardian should be carefully considered. Some things to think about:

• Do you want the same person who will have custody and care of your children to also have control over the estate?
• Is this person emotionally and physically able to care for the child?
• Do they have time? Will they have to give up work?
• Where will the child live?

In ideal circumstances, you would identify two or three people and then have open, honest discussions before you finalize the arrangement. Having an alternate guardian is also a good idea. If each parent has a separate will, the same person should be named in each.

If you are divorced and co-parenting, you may want to name a guardian in your will if there is someone heavily involved in the child’s life and you want that role to continue. While the surviving spouse is usually granted custody, there are circumstances where a guardian may be necessary.

 

Creating a Trust Can Provide Time, Responsibility, and Security

Depending on how old your kids are, you may have already given some thought to how much freedom over money they should have as they get older. You probably wouldn’t give your child unfettered access to your bank account or your credit card when they go away to college. Leaving an inheritance without a protective trust structure amounts to the same thing. Without a trust, they will be legally an adult at age 18 and in control of the funds.

A trust can be set up to distribute the money at different ages or conditional on milestones such as graduating from college. Another option is to create a structure where children can be brought on as co-trustees at a given age, to get used to managing the funds before the distribution is made. If you have multiple children, you do not need to set up separate trusts. You can create one trust and provide each child with shares.

If the person you select as guardian is capable of managing the trust – which should be prudently invested and overseen – that may be the simplest route. However, it’s common to appoint someone else as guardian of the estate. This person can be responsible for handling overseeing, hiring asset managers, and ensuring that the terms of the trust are met. It many instances, this is the best way to go – it removes the inheritance from the relationship with the guardian, which can smooth the road considerably and keep their relationship without conflict, as they are not in the position of denying or acceding to any demands.

 

The Takeaway

Proper estate planning when you have underage children is critical. Taking the time to think through how to safeguard your children’s assets – so they can be used to provide care, education, and a great start in life – is the goal of estate planning at this stage. But it can also be creative and provide your child with an ongoing connection to you.

Princess Diana left her clothes to her sons along with funds to set up a foundation, with the idea that her children would ultimately determine how to continue her – and their – shared commitment to philanthropy. Thinking through details like that, and including them in your plan, can keep you present for your children.