Estate Planning for Individuals or Couples with Minor Children

The birth of a child is another one of life’s amazing moments.  It is also a good point to sit down and review your estate plan to ensure that it provides in the proper way for your children, or to do estate planning for the first time if you haven’t done so previously. 

The young couples that visit our office always have several burning questions: what if something happens to both of us?  Who will take care of our child?  Who will provide for their well being?  Who will be appointed to manage and distribute the money we leave for our child?  The good thing about the answers to all these questions is that the couple has the ability to control them in many different ways. 

When minor children enter the picture, both spouses need to execute wills that do three primary things in the event that both spouses are deceased:

  1. Establish a trust for the benefit of the minor child or children;
  2. Name a Trustee to manage and administer the trust funds; and,
  3. Name a guardian for the minor child or children.

Additionally, both spouses need to execute durable powers of attorney that name a backup attorney-in-fact that can act in the event both of them are incapacitated but not dead. 

Why do couples need the three above items in their wills?  Because if they don’t make those decisions, the State of North Carolina will do it for them.  Let’s look at an example.

Susan and Steven have been married 10 years, and have two children, ages 5 and 3.  For their 10th Anniversary, Susan and Steven leave the children with Susan’s parents, and hop aboard a cruise ship for a week in the Bahamas.  While taking a helicopter tour of the islands, the helicopter crashes and Susan and Steven are both tragically killed.  Distraught, Susan’s parents begin moving forward with opening the estate of Susan, and Steven’s parents do the same for him.  The parents also begin to have discussions regarding the care of the children going forward, but are unable to reach any sort of agreement.  Neither Susan nor Steven had done any estate planning.  What happens?

The most obvious issue here is: who will take care of the kids?  Both Susan’s parents and Steven’s parents are still living.  Both strongly desire to care for and raise the children.  But the court is not going to appoint both sets of grandparents jointly to serve as guardian for the children.

The North Carolina statutes outline how this decision is to be made, and it requires a court proceeding and presentation of evidence as to whose appointment as guardian will be in the best interests of the grandchildren (N.C.G.S. §35A-6).  In this situation, both sets of grandparents may seek to be appointed guardian.  This could lead to fights and disagreements amongst the grandparents and cause bitterness between families that have just suffered a tragedy. 

These problems could have been avoided with basic estate planning by Susan and Steven.  The North Carolina statutes allow parents to set out in their wills how they would like to serve as guardian for their minor children (N.C.G.S. §35A-1225(a)).  This appointment is not binding on the court, but serves as a “strong guide” for the court regarding appointments.  If both Susan and Steven had named Susan’s parents as guardian of the children in their wills, that just makes it an even stronger guide.  Basic estate planning by Susan and Steven could have helped their parents avoid competing for the care of the children and eliminated one unnecessarily stressful item, while ensuring that their children were cared for by the people that they saw as best to do so. 

The next issues are: what about Susan and Steven’s assets?  Where do they go?  Who deals with them while the children are underage?  At what age do they get the assets?  Let’s play things out.

Assume that neither Susan nor Steven had done wills.  According to the North Carolina Statutes, because they were survived by two children, their estate will be divided equally between those children (N.C.G.S. §29-16(a)(1)).  Let’s assume that the total of Susan and Steven’s estate, with life insurance included, is $1 million.  That means each of the children is entitled to $500,000.00.  The statutes go on to say that when a portion of a decedent’s estate is distributable to a person under the age of 18, that portion shall be given to an appointed custodian (which would normally be the guardian of the children but does not have to be) and held and used for the benefit of the minor (N.C.G.S http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_33A/GS_33A-6.html§33A-6; N.C.G.S. http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_33A/GS_33A-6.html§33A-12; N.C.G.S §33A-14).  Upon the minor turning 18, the funds held by the custodian are to be distributed outright to the beneficiary – regardless of the beneficiary’s situation at the time (N.C.G..S. §33A-20(2)).  What that ends up meaning is that Susan and Steven’s children will each receive, when they turn 18, the remaining amount of the original $500,000.00 – without restriction.  Some 18 year olds may be able to manage such a windfall well – others may not.  Regardless, there is no way to guarantee that the children will use those funds in the way Susan and Steven may have desired. 

Had Susan and Steven done basic estate planning, they would most likely have been advised to create trusts for their minor children.  Susan and Steven would have had the option of naming a Trustee to administer those funds (most likely the nominated guardian and the trustee are the same person), and they would have been able to place restrictions on what the money could be used for and how long it had to stay in trust for the benefit of the children.  Susan and Steven would have been able to guarantee that the funds would last for their children at least past college, and the Trustee would be able to make distributions without court approval or direction. 

Basic estate planning when a single person or a couple have minor children is extremely important.  Every parent wants to ensure that their children are cared and provided for in the event something happens to them – and estate planning and the creation of wills with trust provisions allows parents to make sure that’s exactly what happens.

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