For many parents, estate planning is primarily about their relationship with their children. But it’s hard to know where to even start thinking through the many decisions you need to make to set up an effective plan. Never fear; we’re here to help! If you’re a young parent (or even if you’re not), read on to find a few thought-provoking questions to get you started thinking about your estate planning.
- Do you want to leave a percentage to charity? We start with the charitable giving question for several reasons. First, it affects all the rest of your planning – in a good way! – if you add a charity to your estate plan. Second, remember that the more you give away, the less there is for the kids to fight over. But third, sometimes people choose to leave money to a charity by adding the charity as “one more child.” For example, if I have three kids, I might divide my estate into fourths and give one-fourth to each child and one-fourth to charity.
- At what age should your children inherit? Receiving a large inheritance is completely different than receiving a regular paycheck. Most people are not taught – and are therefore not equipped – to handle a large windfall. For this reason, one-third of lottery winners end up going bankrupt, and 90% of wealth is gone by the 3rd generation, no matter how large the estate. Would a 22 year-old college graduate be equipped to handle several hundred thousand dollars or more? I wouldn’t have been at age 22…
- Will your kids inherit in a single, lump sum or should they receive multiple installments over time?
- If installments, how often and how many? Both the quantity and the frequency of the installments may depend on how big the estate is and the relative maturity of your children.
- Do you want to give your children limited early access to funds for specific events? This might be appropriate if you set the age of inheritance at a later age.
- For what purposes? Some common examples are: to put a down payment on a house, to purchase/start a business, to attend college or pay off student loans, or to pay for a wedding. You could create incentives for going to college or working for a non-profit organization. The options are limitless.
- How much for each purpose? You can set different amounts for each purpose, or you can set a specific amount for each of the allowed purposes. Most people will stipulate that any early withdrawal made by an heir for an approved purpose will reduce their share at the age of inheritance.
- Should the amount be adjusted to match inflation? Don’t forget that the value of money changes over time. The cost of college tuition today could be much lower than college tuition in 15 years.
- Will your kids inherit in a single, lump sum or should they receive multiple installments over time?
- Who will take care of your children? Choosing a guardian for your children may be the most difficult estate planning decision you can make. Consider parenting styles, attentiveness, stability of their home or marital relationship, values and beliefs, trustworthiness, etc. For more help, check out our Client’s Guide to Choosing a Guardian or this blog post.
- Will your guardian also take care of your kids’ inheritance? Some people are good with kids but not with money. If that’s the case with the guardian you choose, you may want another level of accountability built into how your children’s funds are managed. Having a third-party involved can bring that accountability into the picture. If you choose this route, consider whether or not the guardian and the trustee can cooperate, as the guardian will be making monetary requests from the trustee of the assets (We’ve got a guide for this, too: Client’s Guide to Choosing a Trustee).
- How do you want your children educated? Do you want them educated in a certain school, or in line with a certain set of religious beliefs? If so, then be sure to specify this, and make sure there are enough funds for the guardian to make this happen.
- Will your guardian need funds for a bigger residence? If your chosen guardian already has a full house, will they need to relocate or add-on to accommodate your children? Would you like to include a specific provision to help them with the move or addition?
- How much? Keep in mind that you don’t have to buy your guardian a new house (though you certainly may). Instead, consider providing an amount that allows them to buy a bit larger home or add on to their existing home. The cost to accommodate your children will depend on the location, and how many children you have.
- Should the amount be adjusted to match inflation?
One of my passions is helping parents of young children put together a plan to protect them and their children in the event a catastrophe occurs. Even though this guide to estate planning for young families is just a scratch on the surface of the things you need to consider, rest assured that we are here to help! Our counseling approach is designed to walk you through each of the myriad decisions you need to make to protect your family. Call us at (712) 737-3885 to schedule a Mutual Interview today!
