When it comes to estate planning, every family is different in their own unique way. What remains constant, however, is the need for each of us to think about what would happen if we pass away or become incapacitated. Of course, you don’t have to think about these things. If you bury your head in the sand and don’t plan for these situations, the government has a plan for you. If you don’t want to use the government’s plan, then you should do some planning of your own.
Whether you are married with children, married with no children, recently divorced, never married, or retired with grown children, there are unique considerations that each individual or family should be thinking about when trying to plan their estate. This post will focus on estate planning issues for married couples with children who have not yet reached 18 years of age.
Estate Planning for Married Couples with Minor Children
If you have minor children, they are most likely the most important thing in your life. If something happens to you, your biggest concerns are typically going to be:
- Who watches over your child or children after you are gone (the Guardian); and
- Who manages any money you leave to that child or children after you are gone (the Trustee or Custodian).
Guardian for Minor Children in Minnesota
Who watches over your children after you are gone is commonly referred to as the “guardian”. In legal terms, a guardian of a minor has the same powers and responsibilities of a parent who has not been deprived of custody of the minor child, except that a guardian is not legally obligated to provide for the minor child from the guardian’s own funds.
Trustees and Custodians of Assets for Minor Children
The guardian does not necessarily have to be the same person who manages the money for the minor child. The person who manages the money on behalf of the minor child is referred to as a trustee. A trustee is someone who holds money or assets for the benefit of another individual, known as the “beneficiary”.
If you have minor children and pass away and you don’t do any planning or do the wrong kind of planning, your assets may pass to your minor children. A court would have to appoint a custodian over the assets until the minor child turns 18. Then, under Minnesota law, once your minor child turns 18, they will receive all of the assets that were being held by the custodian appointed by the Court.
Most parents would agree that handing an 18-year-old child a check for what could be a substantial amount of money might not be the best idea. In order to make sure that your minor children don’t spend everything the day they turn 18, a better option is to create an estate plan that only allows the minor child to receive distributions for health, education, maintenance, and support. That way, someone else can make the determination when to distribute money to your children to ensure that it is being spent wisely. The person making that determination, as noted above, is called the trustee.
You can then decide what age is appropriate for your children to inherit your assets. Depending on the circumstances, many clients will choose an age between 25 and 35 for their children to take over their inheritance and manage it themselves. Every family is different, and this is where you will need to make a decision on what is best for your children.
Choices for Estate Plans for Married Couples with Minor Children in Minnesota
Because you have minor children, you can’t really rely on the use of beneficiary designations for your estate planning if you are concerned about your child spending everything the day they turn 18. Remember – if you name a minor as a beneficiary, the Court appoints a custodian over the assets, and your child receives everything at age 18.
So what estate planning options are there for married couples with minor children? There are typically two options:
- Creating a Will that contains Testamentary Trusts built into it; or
- Creating a Revocable Trust that distributes the assets to your minor children in further trusts for them.
Creating a Will with Testamentary Trusts for Minor Children
One of the most common options for a married couple with minor children is to create a Will that contains trusts for the minor children. These trusts are called testamentary trusts, as they are created by your last Will and Testament. In this type of plan, if one spouse dies, everything transfers to the surviving spouse. If the second spouse is also deceased, all of the assets would transfer to the minor children, but they would be held in separate trusts for the minor children. You would appoint a trustee in your Will to manage the trusts for the children. You would also appoint a Guardian to take physical control of the kids and to watch over their daily well-being.
This planning option is typically the cheapest option for a married couple with minor kids. The downside to this type of plan that many people do not realize is that creating a Will for yourself, even if it has trusts built into it for your children, does NOT avoid probate. In fact, the trusts created in your Will are not legally valid until your Will is probated by the probate court. If you are going through probate, you can expect probate costs in the typical range of $6,000 to $12,000. Even worse, probate is a long process. It takes a minimum of about 6 months to get through the probate process in Minnesota, but more commonly it takes closer to a year. Depending on your family situation and the types of assets involved, this could mean that your minor children are waiting on the Court to receive money that they need for their support and care.
Creating a Revocable Trust with Trusts for Minor Children
Another common option for a married couple with minor children is to create a Revocable Trust. The terms of your trust would include trusts for your minor children upon the death of the surviving spouse, just like in the Will described above. The main difference between having a Revocable Trust versus a Will is that your Revocable Trust DOES avoid probate if funded properly. If you “fund” your trust with all of your assets, either by changing the ownership on the assets or by designating the trust as beneficiary upon your death, you will not need probate to transfer your assets to your minor children. As such, you stand to save the $6,000 to $12,000 probate costs by having a Revocable Trust.
The downside to using a Revocable Trust for your estate plan with minor children is that a Revocable Trust costs more than a Will. It is also more work for you and your spouse. The two of you are essentially doing all of the work for those you leave behind by retitling assets and updating the beneficiary designations. You will never appreciate your trust like your family will since you will be gone.
Sometimes it is hard to justify spending the additional money on something from which you do not see the immediate benefit. While having a Revocable Trust is typically the option that accomplishes all of the goals of clients who are married couples with minor children, it might not be the most affordable option when you are right in the middle of paying for all of the expenses that come with having minor children.
Who Should Manage the Money for Your Minor Children if You Die?
Regardless of whether you choose a Will or Trust, you will still need to decide who manages the money for your children. If you choose a family member as trustee, they may not have the experience necessary to properly invest and manage the funds.
Choosing a trustee for your minor children is an important decision. If you don’t have family members who can serve as trustee, having a corporate trustee is another option. These are typically banks, professional fiduciaries, or trust companies. The downside to choosing a corporate trustee is that they will charge a fee based on the amount of assets under their management. Those fees typically will range from 0.5% percent up to 2% depending on the amount of assets. The benefit, however, is that you have a neutral third-party to make the distributions to your children according to the terms of your Will or Trust. They also will invest the assets prudently to ensure maximum return with minimum risk.
The last option is a combination of the above. You could appoint a family member along with a corporate trustee to serve as co-trustees. The benefit is that you have a family member who likely knows the beneficiaries and can account for the unique family circumstances, but you also have a corporate trustee who can invest and manage the money prudently while also keeping an objective distance from any personal feelings that may be involved in the relationships.
Incapacity Planning When You Have Minor Children
We have discussed the planning options for if you die when you have minor children in Minnesota, but one of the other important aspects to consider is what happens if you don’t die, but you are incapacitated.
It is important to ensure that both parents have Health Care Directives, Powers of Attorney, and HIPAA Waivers in their estate plan to ensure that you have designated other individuals to make decisions for you relating to your legal, financial, and health care matters. Regardless of whether you choose a Will or a Revocable Trust plan for yourself, you should have those three documents.
If you don’t have a Health Care Directive and someone needs to make decisions for you regarding your health, your family may have to file a guardianship petition with the court to get the power needed to make those decisions. As you can imagine, that could cost thousands of dollars. The same thing goes for legal and financial decisions – if you are incapacitated and your spouse needs to access a bank account that is in your name alone, your spouse or family may need to file a petition for a conservatorship with the court to get the power needed to make those decisions and access those accounts. These court proceedings, sometimes referred to as “living probate”, are expensive, time consuming, and can last for many years. All of that can be avoided by having a Health Care Directive, Power of Attorney, and HIPAA Waiver.
Protecting Your Minor Children with an Estate Plan
The above is a general outline of the things you should consider when trying to protect your loved ones with an estate plan. The unique aspects of planning when you have minor children should be discussed with an experienced estate planning attorney who is licensed in Minnesota. Contact our office today if you would like to discuss creating an estate plan that protects your assets for your minor children. Click here to schedule an appointment today or call our office at (952) 658-6503.
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Zach Wiegand is a Minnesota probate attorney and estate planning attorney and the owner of Gold Leaf Estate Planning, LLC. Gold Leaf Estate Planning is an estate planning law firm that also handles probate and trust administration in Minnesota. We serve the Twin Cities metropolitan area with a focus on estate planning for clients in Burnsville, Eagan, Savage, Prior Lake, Lakeville, Apple Valley, Eden Prairie, Farmington, Rosemount, and the South Metro as well as clients in Woodbury, Lake Elmo, Maplewood, Oakdale, St. Paul and the East Metro. Our firm has offices in both Burnsville and Woodbury (Lake Elmo). The firm also handles probate in Dakota County, Washington County, Scott County, Hennepin County, and Ramsey County and most other counties in the Twin Cities Metro area. Zach has been named a Super Lawyer – Rising Star for 2017, 2018, 2019 and 2020. In addition, Zach is a member of the Society of Financial Service Professionals, the Twin Cities Estate Planning Council, and WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at zach@goldleafestateplan.com or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337 and in Woodbury/Lake Elmo at 8653 Eagle Point Boulevard, Lake Elmo, MN 55042.
