How to Protect and Provide for Your Children and Your Estate Plan
Chad Halbur, CFA | President | Cornerstone Private Asset Trust Company
As we move through the fall and into the holiday season, I am always reminded how important family is to me. When gathering with family, it causes me to question how many of us have a well-designed wealth transfer plan.
There are many reasons to have a personalized and intentional plan, everything from tax strategy, proper administration, and financial security for your family. In this article, I will focus on the last piece; the need for financial security for your family, specifically your children.
As a parent of young children, appointing a guardian is typically one of the most critical roles in your estate plan. The person you name as the guardian in your will is responsible for caring for your children if you cannot do so yourself. I have listed a few factors to consider when choosing a guardian.
Does the person you choose:
- Share or honor your family values and priorities in raising your children? Have you communicated what these are to the listed guardian?
- Have the financial skills to manage and oversee the financial resources? If not, they can still be the right choice as the physical guardian, but you may wish to choose someone different as the financial guardian.
- Have a good relationship with your children?
- Have the ability to provide a stable environment for your children?
- Have the physical ability to care for your children?
- Have the interest and willingness to serve this role?
- Have you communicated your request to them to fill this role in your absence?
Another part of being prepared with young children is knowing if you have accumulated enough financial resources to support your family. When we are young, having enough is challenging for two reasons: First, we have not been in the workforce very long, and thus, it is difficult to accumulate financial assets. Second, the younger you are, the more significant the income replacement needs because a longer time horizon is required to support the family.
For these reasons, buying life insurance as an income replacement solution may be a strategy to consider.
In most cases, a Term Life Insurance Policy may be sufficient to bridge the gap between minor children and when you have accumulated enough assets to self-fund the need.
As a parent with adult children, the factors change a little.
I have listed a few items to consider in estate plans with adult children:
- Do you want your children’s inheritance to go “outright” or in a “trust” structure? Outright distributions are the most straightforward way but, in many cases, not the most effective. Outright distributions can prove costly:
- If you have a child who struggles with addiction (ex. gambling, or alcoholism), these dollars could harm them instead of helping them.
- If you have a spendthrift child, these assets may have the same effect as a lottery winner.
- They have a large cash infusion which lasts on average 2-4 years before it is fully exhausted, and they now have a higher standard of living that they can no longer support.
- They have special needs and are receiving state or federal aid.
- If you have a child whose marriage is not strong and there is a risk of divorce, these assets could become assets divided in a divorce settlement. Using a trust could protect your children from these and other pitfalls that come with inheritance.
- With children at an older age, you may ask them to take on some of the responsibilities of the estate.
- Health Care Power of Attorney
- Financial Power of Attorney
- The executor of your estate
Should you name your children to some of these roles, we recommend one of two things. First, keep your estate documents as simple as your financial situation allows. Second, if your estate is complex, support the family member with a professional to assist. A professional trustee can serve as co-trustee with family or Agent for the trustee or executor. Most of our clients choose a professional trustee so they do not burden their families with the heavy lifting of the duties of this role.
No one wants to think about their demise. Still, as a caring parent, it is prudent to have a plan in the unlikely event you pass away unexpectedly. I encourage you to personalize this and think about my family’s struggles if I were not here to provide for them.
If you have questions or want a complimentary review of your estate plans, please contact Chad Halbur at CHalbur@cornerstonetrust.net