Estate Planning for Parents

As the holiday season approaches, many of us will be spending plenty of time with family. While we (hopefully) enjoy their company and reflect on the year, it is also a good time to consider our estate plans, especially for those of us with children. 

While we would do almost anything for our kids, too many of us fail to plan in case something happens to us. This can cause unnecessary headache and heartache in an already upsetting situation. Creating a thought out estate plan can be one of the most helpful gifts to your family, and for parents of young children, it is even more important to help ensure your children are appropriately cared for in the event of the unthinkable.

This article will cover some considerations for estate planning for young families, parents of children with special needs, and parents with older children. As with everything else when it comes to parenting, your plan will change as your kids get older, so it is important to regularly review your documents to make sure they reflect your wishes.

Guardianship

First on almost every parent’s mind is, “What happens to my child if I die?” Many think a child’s godparents–if there are any–will automatically be able to take over as the child’s legal guardian, but this is not the case. “Godparent” is a religious title, while the person who has legal custody and decision-making authority for a child’s care is a guardian, who is appointed by a court. They can be the same person, but you may need to take steps to make this happen.

There are two ways to designate who you would like to be your child’s guardian if you are unable to care for them. The first way is to specify in your Will the person you would like to be the guardian if you die while your child is still under 18 years old [1]. It is important to note here that this only covers the situation where you die, not if you become incapacitated (alive but unable to care for yourself or others). The second, stronger way to designate a guardian for your child is through what is called a Declaration of Preneed Guardian. This is a separate document you execute–maybe at the same time as your Will–in which you list who you would like to be your child’s guardian if you die or become incapacitated [2]. The declaration needs to be recorded with the Clerk of the Court in the county where you live, so it becomes an official record that the court can look to if needed.

If you do not designate a guardian for your child and the court has to appoint one, there are a number of factors the court will consider, but that is beyond the scope of this article.

Trusts for Your Children

Many parents are probably (rightly) skeptical of their children’s ability to manage a large amount of money, especially if they receive it all at once and with no strings attached. Will they invest it wisely and have a nice nest egg to live off in their later years or will they blow it all and buy a Lamborghini? For the parents that do not want to risk it, the solution is a trust.

For parents of young children, setting up at least a testamentary trust (one that only takes effect when you die), is a must. If a child receives $15,000 or more from an inheritance, a court will likely require a guardianship be set up to protect the child’s money [3]. Then, once the child reaches 18, they will have full, unrestricted access to any funds left. Think about that, an 18 year old with your life savings (plus any life insurance proceeds). Scary. But fear not, you can set up a trust in your Will that will only take effect if your child is under a certain age, and this will prevent your child from having unrestricted access to the funds. Instead, a trustee will control the funds and can pay the child’s reasonable expenses, whether they be for healthcare, education, or other support needs. 

There are different types of trusts for different situations. Parents with multiple children, especially if there is a significant age gap between children, can either set up a separate trust for each child or set up what is often called a sprinkle or pot trust. If each child has a separate trust, the parents can determine exactly how much each child gets, but if parents are unsure how much each child will need–for example, there are three children under 10 and it is impossible to say if one will get a full scholarship to school while the others will have to pay, or one develops a health complication–a sprinkle trust may be the answer. With a sprinkle trust, all of the trust assets are left together (in one “pot”) and it is up to the trustee to determine how to distribute the funds based on the children’s needs. This gives the trustee a lot of flexibility to deal with a change in circumstances and potentially spend more of the trust assets on a child with greater needs than their siblings. I personally like sprinkle trusts and have set one up for my own young children.

For adult children, parents may have a better idea of what to expect and can plan accordingly. A responsible child with kids of their own may be able to get an inheritance outright, while the parents may want to have the reckless younger sibling’s share held in trust so that it cannot be squandered. Either way, trusts afford parents a wide range of options to deal with almost any situation.

Special Needs Trusts

Parents of children with special needs, especially those who receive public benefits, may have to take extra precautions to ensure their children do not lose access to these benefits. 

Unfortunately, a common situation is where a parent passes away without any estate planning documents, and then their special needs child receives an inheritance large enough to disqualify the child from Medicaid. While there are some options for the child to maintain benefits, such as establishing a first party special needs trust (funded with the child’s own assets, including the inheritance they receive from their parent), Medicaid will maintain a lien on any assets in this type of trust. When the child passes away, Medicaid will be able to recover an amount up to the value of the Medicaid benefits the child received during their entire lifetime. Typically, this means that any amount remaining in a first party special needs trust ends up going back to Medicaid. 

However, with even a little planning, parents can avoid this situation by creating a special needs trust for their child–either a standalone trust or a trust created in the parents’ Wills–that is only funded with the parents’ assets. Since the assets (usually money) go directly into the trust instead of to the child first, the child never legally owns the assets. This probably seems strange; afterall, it is the same money, so why does it matter if it is the parent or child who sets up and funds the trust. But this small difference is extremely important. So long as the trust is set up correctly by a special needs trust lawyer, a third party special needs trust (funded by assets other than the Medicaid recipient’s) is not subject to a Medicaid lien. What this means is that parents can direct that the trust’s assets be used to help their special needs child for the child’s life, but when the child passes away, anything left can go to another person or charity instead of going to Medicaid. 

Communicating Your Wishes

Once your kids are adults, it is important to let them know a couple of things. Most importantly, after you execute your estate planning documents, you should make sure your children know that they exist and where they can be located (presuming you are not concerned any of them may try to mess with the documents). 

Secondly, I believe it is important to let your children know why you have set things up the way you have. If one child is cut out of your will or trust or going to get less than their siblings, there will undoubtedly be hard feelings. That child may be more likely to challenge your plan in court, which can cost your estate money while also delaying distributions to your beneficiaries. And even if all of your children are going to get an equal share of your estate, there may still be hard feelings if one child felt they were entitled to more for whatever reason, such as if they took care of you for a prolonged period of time. There may be no way or personal benefit for a child to successfully challenge your will or trust, but by letting your children know your thoughts and intentions, it can help deal with a potential source of family strife. 

As with every other aspect of parenting, estate planning has a lot of moving pieces, so it can be helpful to consult with an estate planning attorney to make sure that nothing is overlooked and that your children are provided for the way you intend.

[1] § 744.312(3)(c), Fla. Stat. (2023)

[2] § 744.3046, Fla. Stat. (2023)

[3] § 744.301(2), Fla. Stat. (2023)

[4] 42 U.S.C. § 1396p(d)(4)(a)

[5] Fla. Dept. of Children & Families ESS Program Policy Manual, 1640.0576.03–1640.0576.09