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Estate Planning for Young Families

December 18, 2021
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With the weather cooling down and school schedules mapped out, I hope this winter allows us to spend time with our families and enjoy our kids. Maybe once or twice this season, I hope we can all look beyond the present moment, whether it’s joy, frustration, or a combination of both, and make a plan for the future of our families. As parents, our kids rely on us for most everything, but have you ever thought about the notion of not being able to be present? Without sounding too grim, we all expect to die someday. In my opinion, planning ahead — for the sake of our kids — in preparation for our own passing is one of the most affectionate exercises we can do for our families.

I had a client approach me looking to establish accounts for her children. She wanted to make sure she was doing everything possible to make sure she was providing for her kids. I dug a bit deeper and found out she had not completed any estate planning. My response was simply this: the best thing you can do for your kids financially is get your own financial life together. So many people end up having to take care of their parents’ financial responsibilities late in life. Parents leaving their children to uncover a complete, organized, and thoughtful financial situation is rare. Having your proverbial “stuff” together is your legacy.

In my opinion, death provides the ultimate meaning to life, so looking beyond ourselves for the sake of our families’ future is a selfless and loving act. One of the most effective ways to accomplish this is to create an estate plan. The term “estate planning,” to me, sounds complicated and difficult, but there are various levels of estate planning, all of which can provide relief, simplicity, and deliver a sense of love, peace, and closure to loved ones upon our passing. Estate planning is really nothing more than considering our families’ needs beyond our own, from a financial and legal perspective. Here are a few simple, cheap, and effective ways we can think ahead for our kids.

1. Review your beneficiary elections. Whether it be in a life insurance policy or a retirement plan at work, making sure beneficiary elections are accurate is an easy and effective way to deliver and direct appropriate assets to loved ones quickly. If the beneficiary election is not accurate, it can become disastrous for surviving families. I suggest reviewing all beneficiary assignments at least annually, and every October or November, while enrolling in company benefits, is a great and convenient time to do this. This is an easy time to review accounts and policies through your employer, but I’d recommend taking it a step further and reviewing individually owned policies and accounts during this time as well. It’s important to contact a trusted professional to help you if you have questions. One of the most common mistakes I see in beneficiary elections is naming minor children as beneficiaries. Laws are different in each state, so check with your state’s law, but a minor is typically not legally allowed to accept money or other assets until they reach the age of majority. To be certain minor children benefit from these kinds of policies and accounts, a trust is generally utilized, but that is beyond the scope of this article.

2. Title assets properly. Having assets get held up in probate court (probate court is a fancy word for “inheritance court” or “death court”) can be frustrating, confusing, and even expensive to your heirs and loved ones. Simply making sure your assets are titled properly, depending on how you plan to transfer accounts and assets to your loved ones, can immediately lift some responsibility and burden. I would suggest seeking the appropriate legal counsel to determine the impact of retitling an asset, as there may be loss of control or tax implications of doing so.

3. Create a will and a plan. A will is a legal document that allows a person to make his or her own decisions about their belongings and dependents. Simply put, a will directs assets to the named individuals and names guardianship of minor children. In my opinion, guardianship is a key component to an estate plan. If something happens to you (and your spouse, if you’re married), who is going to take care of your kids? Without a will, that question remains unanswered, and that can be a disturbing conundrum. A will seeks to solve this problem, among others.

Prior to making a will, sit down (with your spouse or partner) and create two lists of people in your life. The first list is who you would want to take care of your kids when you are no longer living. I typically suggest making this list no shorter than three families, ranked in order of the desired destination. This is your guardianship request. I also recommend contacting each person or family in this list and communicate the fact that you’re planning ahead, and you want to get their permission to include them in your plan as a guardian.

The second list is who do you trust and care for who is responsible and trustworthy. This is your executor list. An executor is a person who will represent your family’s interests and carry out the provisions set forward in your will.

The rules are different for each state, but there are a few methods of creating a will, and some are more effective than others. In some states, a handwritten – or holographic will – is generally acceptable. I don’t recommend this method, as it’s not as accurate and readily accepted by many courts, even those that accept holographic wills.

A will can also be created for the do-it-yourselfer by subscribing to legal document software online. While this can be a valid and cheap method, it’s typically not robust or intricate by nature. As such, it might be an inexpensive method, and better than nothing, but you get what you pay for.

Another way to draft a will is to meet with an attorney. In my opinion, this is the most effective method. An attorney can serve as a sounding board, knowledgeable about the rules available to you by the state in which you live, and can help you think outside the box, verify desired outcomes, and guide you accordingly. Additionally, an attorney will know the rules for each state and be able to effectively be compliant. For some families, especially those desiring to leave assets to minors, a will may not be sufficient, and the attorney can let you know when other strategies are more effective for your plan. Seeking an attorney is likely pricier than a handwritten will or an online subscription, but I would estimate there to be a lot more confidence behind the decisions being made, and in short, that confidence might be well worth the expense.

4. Coordinate and communicate the plan. Electing proper beneficiaries, aligning asset titling, and creating a will are all a great start to planning for the benefit of your family. Now make sure you put all these elections together and communicate these ideas to your family. I even recommend you give your chosen executor a copy of your will. Talking about money with family members has been taboo for a long time, but letting your family know there is a plan, and what to do is an important conversation that gets dismissed all too often. When discussing money to family, you don’t necessarily have to discuss specific dollar amounts, but you can tell your kids you’ve thought about them and their well-being by making a plan. You can make sure your executor knows who to contact if you pass away while your kids are still minors. You can also communicate your wishes to your elected guardians, so they are ready to step in and take in your kids lovingly when needed to do so. Lastly, keep an open channel of communication with your family and trusted advisors about your goals and plans for the future; this can provide further assurance your wishes are clearly communicated to everyone involved.

Considering the needs of our family is a selfless and honorable act. As we enjoy our family and watch our kids grow and discover new friends, places, and activities, we can make sure our kids know they are loved by making an estate plan. However difficult it may be to imagine, we all will die someday. Our passing can provide great meaning to our loved ones, and we can positively impact the lives of our kids long after we pass away. A new level of confidence is extended to us when we know our kids will be cared for, no matter what curveballs life throws us.