Wills and Estate Planning for Parents of Minor Children in Ohio
Nobody will raise your kids like you will; however, estate planning will let you have your say in the matter in the event you are unable to be there due to your death or otherwise inability to raise your kids. Among the many other considerations involved in planning your estate, some of the main considerations when planning an estate with minor children include:
(1) who will make decisions related to the children’s health, education, and maintenance (known as the guardian of the person);
(2) who will manage any assets that you leave your children; and
(3) what age would you feel comfortable with your children having control over any assets that you leave them.
The same person(s) may be designated as guardian of the person and to manage assets; however, some clients may decide to name separate persons to handle these roles. These designations should be made in both your Last Will & Testament and in a Power of Attorney. We recommend that you have a primary person for each role and, at minimum, one alternate (if not more). It is highly likely that as your children get older, your assets increase, or as circumstances change, you may need to readjust your plans. Therefore, it is recommended that you periodically review your estate plan.
1. CHOOSING A GUARDIAN OF THE PERSON
One of the first considerations for clients with young children is deciding who will raise your children if you are unable to do so yourself. The guardian of the person would make decisions related to your child’s health, education, and well-being in your place.
While various factors go into this consideration, in naming a guardian of the person, you will want to consider your values, the values of the proposed guardian of the person, the relationship of the children with the proposed guardian of the person, your religion, the physical location of the proposed guardian, and the age and health of the proposed guardian. For example, it is not a good idea to name your 70-year-old parent to be the guardian of the person over a newborn baby. While your wishes play a primary role, you need to consider that ultimately the guardian of the person will need to be approved by the court (i.e. avoid anyone convicted of crimes involving theft, physical violence, or sexual, alcohol, or substance abuse).
2. MAKING ASSET MANAGEMENT DECISIONS
The next primary consideration for clients with young children is deciding who will manage the assets for your children and, at what age, you feel comfortable with your children managing assets on their own. This consideration is particularly important for parents that are divorced or never married to the other parent of the children (i.e. would you want the other parent managing assets for the child(ren)?).
Four options exist under Ohio law for leaving assets to your minor children at your death. When deciding which route to go, it is important to think about the value of property that could be left to your children, the age at which you would feel comfortable with the children having total control of any property, whether you would want the probate court’s involvement in overseeing what is going on with the assets, and the administration costs of each option. Generally, involving the probate court in the administration will increase the costs since more work may be required.
In deciding the person who will manage the assets, among other factors, you will want to consider that person’s values and financial savviness and security (i.e. do not name someone who has filed for bankruptcy or who has creditor issues). Depending upon the situation, some clients may decide to name a third-party fiduciary such as a bank to handle the management of assets. This person will manage, control, and distribute the assets on the behalf of the children according to the option you have decided upon until the designated age is reached (i.e. the assets can still be used for your children until the children reach the age you specified).
The appropriate age for distribution is up to each individual client. When planning with relatively young children, choosing an age can often be difficult since we cannot determine how mature a child is going to be 10-15 years from now. I often challenge clients to think about themselves at a given age (i.e. what would you have done with a bunch of money at the age of XX?), and almost all parents tend to choose an age higher than just 18. If you have concerns for an individual child (for example a handicapped child), that child’s share can be administered with a special type of trust during the child’s entire lifetime instead of disbursed at a designated age.
Here is a summary of the four available asset management options in Ohio.
Guardianship of the Estate
First, you can leave assets to a minor child subject to a guardianship over a child’s estate. This is the default option if you leave no instructions. Whether the probate court is involved in getting the assets to the guardian of estate (i.e. whether a probate estate will be required for you) will depend upon the types of assets you leave and whether you have designated beneficiaries to those assets. The nominated guardian of the estate would need to initiate a court action to take control of any assets (this could be done in conjunction with the guardianship over the child’s person). The probate court will require that the guardian of an estate file an inventory of the assets and an annual accounting showing every receipt and disbursement made for the benefit of the child throughout the year. The guardian of the estate is also required to ask the court for permission before making any expenditures of the assets. The guardianship must end upon the child reaching 18 years of age, meaning the child would automatically control any remaining property at that time.
Second, you may leave the property subject to a testamentary trust in your Last Will & Testament, naming a trustee to manage, control, and distribute assets based on a specified standard and with designated powers until the child reaches a specified age. This age can be any age that you desire. Whether the probate court is involved in getting the assets to the testamentary trustee (i.e. whether a probate estate will be required for you) will depend upon the types of assets you leave and whether you have directly designated the testamentary trustee as the beneficiary to those assets. The nominated testamentary trustee would need to initiate a court action to take control of any assets. The testamentary trustee is subject to the probate court’s supervision and is required to do an annual accounting for the duration of the testamentary trust.
Custodian pursuant to the Ohio Transfers to Minors Act
A third option is to permit all of the property to be managed and distributed by a custodian under the Ohio Transfers to Minors Act. A custodian is an adult who can manage, control, and distribute the assets as the custodian sees fit for the child’s benefit until the child reaches the age when control passes to the child. In Ohio, the maximum age for handing control over to a child was recently changed from 21 to 25. In most situations, the probate court will be involved in getting the assets to the custodian (i.e. a probate estate will likely be required for you) since not all financial institutions will permit you to directly designate a custodian as a beneficiary, thereby necessitating you to leave the asset to your probate estate first so that it funnels to the custodian. This can create planning issues for clients with tax-deferred accounts (i.e. 401k’s and traditional IRA’s). The custodian is generally not subject to the probate court’s jurisdiction and ongoing supervision over the management and distribution of the assets for the child; however, a court could require an accounting from the custodian if requested by the child.
Inter Vivos Trust
A fourth option is using an inter vivos trust that is separate from your Last Will & Testament naming a trustee to manage, control, and distribute assets based on a specified standard and with designated powers until the child reaches a specified age. This age can be any age that you desire. In most planning situations, this type of inter vivos trust will be what is known as a revocable living trust. Whether the probate court is involved in getting the assets to the trustee (i.e. whether a probate estate will be required for you) will depend upon the ownership/title of the assets that you leave and/or whether you have directly designated the trustee as the beneficiary to those assets. This trust is designed to avoid the need for any probate court supervision in the administration of the assets for your child. Special provisions can be included to achieve the most advantageous tax benefits for any tax-deferred accounts that you intend to leave your child.
The above information gives a very basic overview of your options. To learn more about planning your estate when you have minor children, please contact us.