What Happens to Your Children (and Your Money) If You Die When They Are Young?
As she hung up the phone, reality began to sink in. Her mother was dead. Massive heart attack at age forty-seven. How much bad luck could one person have? Dad died only two years ago in that freak accident on the tractor. Mom couldn’t be dead too. She’d been so active and fit. Dedicated to being there for her and Tommy. Tommy. He’s only 10. What is she supposed to tell Tommy? Who was going to take care of them? How would she complete college? Sarah began to feel the familiar tug of despair. She needed a drink.
Fortunately, Sarah’s mother left a will naming Sarah and Tommy’s Aunt Anne as their guardian. A guardian is the person who is responsible for raising children if their parents died or are otherwise unable to raise them before the children attain the age of eighteen. Aunt Anne is the perfect choice. Tommy knows her well and loves her. Aunt Anne knows Sarah’s history with alcohol and what she can do when she’s sober, which she has been for eleven months now.
Unfortunately, Sarah’s mother’s will leaves everything to her children out-right. That means that as each of her children attains the age of eighteen, they will receive the inheritance without adult supervision or guidance. Sarah is only eighteen, but her share of her mother’s assets will be hers to use as she sees fit. Until Tommy reaches age eighteen, Aunt Anne will serve as his conservator. That means Aunt Anne’s use of the money for Tommy will be supervised by the local Circuit Court. Every year, Aunt Anne will need to provide an accounting of the money she spent on Tommy. This can be an expensive process. Due to Sarah’s history with alcohol Aunt Anne may be able to get a court to appoint her as conservator for Sarah’s money, if she relapses and begins drinking again.
Most eighteen-year-olds are not equipped to manage large sums of cash or other assets. This is particularly true when both of the teen’s parents have died. Nonetheless, if you do not prepare an estate plan that delays your child’s receipt of your assets after you die and you die before your child is eighteen, your child will receive your assets at age eighteen, barring unusual circumstances.
One of the other primary reasons people place their assets in a trust or leave their assets to a trust through a will is to care for their minor children or other beneficiaries who are, or may be, unable to care for themselves. Unless the estate plan dictates otherwise, the minor children of deceased parents will each receive an equal share of the decedent’s estate on their eighteenth birthday. Many people wish to delay their children’s receipt of significant sums of cash or other assets until the children are older.
This reasoning is just as true for grandparents who wish to benefit a grandchild. Stereotypically, husbands and wives with grown children wish to benefit each other first and their children second. If one of their children dies before them, but leaves living grandchildren, the grandparents typically want that deceased child’s share of their estate to pass to that child’s children. Again, a trust permits the grandparents to control how old the grandchildren must be before they are entitled to have complete control over the assets. A trust also permits the grandparents to control the uses to which the funds can be put.
A second significant reason why many people create estate plans which include Revocable Living Trusts is to avoid probate. The most common myth I encounter in my estate planning practice is that a will avoids probate. That is not the case. A will requires probate to have the decedent’s wishes in the will implemented.
A third major reason many people create trusts is to allow whichever spouse dies first to control the distribution of about half of the assets upon the death of the second spouse to die. This is particularly important in a second-marriage situation. If one or the other, or both, spouses have children from a prior relationship, most typically that spouse wishes to support his or her current spouse and have his or her assets pass to his or her own children, rather than the children of his or her spouse. A trust is just the document to control those events to the best satisfaction of all.
A fourth significant reason people create trusts is to control their finances and their personal care if they become incapacitated or incompetent. Typically, trust documents allow the person creating the trust to dictate who will control the funds when he or she is no longer able to, how the funds will be used, as well as providing some direction about the person creating the trust’s personal care, should that person be unable to make decisions about his or her own care.
As you can see from the scenario with Sarah and Tommy, their mother had prepared a will designating a guardian for her minor children but unfortunately, did not create a trust where the distribution of the funds could be controlled until her children were older and more prepared to use the funds for their education or buying their first home. In all likelihood, the share they will receive at eighteen will be spent by the time they reach the age of twenty-five. It is never too early to start planning for the inevitable, and the more prepared you are now, the easier it will be for those left behind.
