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Estate Planning Meets Family Planning: When and How to Plan for Minor Beneficiaries

Posted by Jeanna Shelton | Aug 25, 2022

So far in 2022, one of the most common goals heard from our estate planning clients with young families is to make sure their minor children are provided for in the event of their death. This goal is often accompanied by the desire to learn more about naming a physical guardian for minor children if both parents die, as well as designating how any inheritance should be used on the minor children's behalf. So how can a family provide for young children, and when should these plans be put into place?

Why Plan?

Before explaining the legal options young families have available in the context of estate planning, it is important to remember “why” we recommend that families secure a comprehensive and tailored plan.

In North Carolina and South Carolina, minors (or children under the age of 18) cannot inherit assets outright. Instead, if no other mechanism is provided for through estate planning documents, the Court will appoint a custodian to create a custodial account for the inherited funds. The custodian will then manage those funds until the minor attains the age of majority (18 years old). Formal accountings are required to be submitted to the Court on a regular basis for approval, and additional oversight may be required for certain expenditures or gifts to the child to be approved. This process can be expensive, complicated, time-consuming, and burdensome on heirs and the physical guardians.

Similarly, the Court is responsible for appointing the physical guardian of any minors if both parents die or are otherwise unavailable. Without legal documents informing the Court of the parents' wishes on who should serve as the physical guardian of the children, the Court will determine who shall serve as guardian based on the best interest of the minor child.

To avoid the custodial account process and to provide guidance on who should be considered for the role of physical guardian, we highly recommend that parents of minor children ensure updated estate planning documents are in place. A well-crafted plan can accomplish parents' particular financial and guardianship goals for their children, while also saving costs, time and stress by simplifying the overall legal process after the death of the parents.

How Can You Provide for Minor Beneficiaries?

When it comes to inheritance, parents can provide either through wills or revocable trusts their preferences for how children receive funds. Often, this is accomplished through establishing trusts for the minor children. Such trusts can be designed to hold the funds for the minors' needs until they reach certain pre-determined ages, at which time the children would receive set distributions or be allowed to access the funds in their own discretion. Until that time, a trustee would be in charge of distributing the funds for the children's needs and/or desires. Parents can name their trustee(s) of choice to oversee the inheritance and can provide instruction as to how the funds should be used.

Parents can list their preferences for who should serve as the physical guardian of any minor children in their wills. Although the Court is always required to evaluate any potential guardian under certain legal criteria (such as “the best interest of the child”), the parents' wishes are taken into consideration as a strong indicator of a suitable guardian. Note that the physical guardian does not have to be the same person serving in the trustee role for the children's funds. An estate plan tailored to specific family dynamics is important to accomplish a parent's goals for providing for their child's well-being, both physically and financially.

When is the Best Time to Plan or Update?

If there are already minor children in a family, estate planning should take top priority to achieve peace of mind related to their care and financial stability in the event of parental death. Similarly, when expecting a child, we recommend beginning the consultation process in the first or second trimester. This should allow ample time to make thoughtful decisions in designing the plan, signing the plan, and beginning the steps to implement the plan before the arrival of a baby and all the excitement (and fatigue!) that comes with this family blessing.

We recommend reviewing existing plans to be sure the plan: (1) allows flexibility for the arrival of additional family members, (2) accurately lists who will serve in the various roles of the plan – such as the guardian and trustee roles, and (3) expresses clear desires for when and how any minor beneficiaries should receive distributions. If any of these components are not appropriately reflected in the documents, it may be beneficial to revisit and/or revise the plan to better mirror current goals.

If there are questions about how to provide for minors or a review of a current estate plan is warranted, contact our office to schedule a meeting with one of our attorneys. We look forward to assisting our clients as they grow and plan for their families!

About the Author

Jeanna Shelton

Senior Associate Attorney

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