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Gainesville, FL Estate Planning, Will & Trust Law Blog

Monday, January 21, 2019

IRAs, Annuities and Guardianship: Providing for Your Minor Children after You Die

IRAs, Annuities and Guardianship:

Providing for Your Minor Children after You Die

Deciding on a guardian for your minor children may very well be the most vexing decision you’ll make regarding your estate planning. Not only must you trust the appointed guardian to raise your children as you’d want them raised, but you also need that person to be financially responsible with your children’s inheritance. For example, if you have an IRA or an annuity that you wish to pass to your minor children, how can you ensure those funds will be used properly - especially if the person you trust most to raise your kids isn’t necessarily the best with finances?

This question is multifaceted, so let’s unravel one aspect at a time.

 

The Question of Guardianship

Here’s the good news: The person who raises your minor children and the person who handles their inheritance don’t have to be the same person. If necessary, you can appoint one guardian to serve each function, naming one as the guardian of the person and another as the guardian of the estate. In this arrangement, you entrust one person with your children’s assets and another with their care, while enabling each to interact with the other. This dual guardianship model gives many parents peace of mind - knowing they don’t necessarily have to risk their children’s inheritance while ensuring that they are raised according to the family's values.

 

Using a Trust

Although guardianship of the estate is an option, for many families the best strategy for financially providing for the children is to use a trust. In that case, a trustee fulfills the responsibility that would otherwise belong to the guardian of the estate. The trust assets can be released to the children or the caregiver incrementally according to age and needs. For example, the trustee could distribute money for the children’s needs until age 18 and then manage for the money until the child is a financially mature adult. Your trustee may also exercise discretion in investing and distributing the funds for the children’s support, education, etc., coordinating with their physical guardian to ensure the children’s needs are met until they come of age. This can ensure that the assets are there when they’re needed for your family.

 

Passing an Annuity to the Children

Annuities pay out regular income - which can make them convenient vehicles to cover ongoing expenses for minor children. If you have set up an annuity for yourself or a spouse, you can name the children as beneficiaries, or you can also name a trust for the benefit of your children. If you are still paying into the annuity at the time of death, your children may receive the balance, or you may give a trustee the option of rolling the balance into another annuity to be paid out to the children at a later maturity date. If you are already receiving annuity payments yourself, the children may simply continue receiving these payments for the remainder of the term. Depending on your annuity contract, payouts may also be made lump sum. Annuities are a very flexible financial product with many different options. If you have annuity now, or if you are considering purchasing one, bring it up with us as we work on your estate plan so we can make sure it meshes with your will or trust seamlessly.

 

Children as Beneficiaries of IRAs

Individual Retirement Accounts (IRAs) are excellent vehicles to pass along wealth for minor children’s welfare - they are similar to annuities in some respects, but with additional tax advantages.

When you name the next generation as beneficiaries of an IRA, you effectively extend the IRA's life expectancy. Since the required minimum distribution payments to the children will be smaller than they would have been for you (since they have a longer life expectancy), the account balance can remain invested for growth over a longer period of time. Your financial and tax advisor can evaluate your situation to help you decide which type of IRA (Roth or traditional) is the best option for your goals, and with the use of a special kind of trust you can protect the IRA against creditors, predators, and bad financial decisions for the lives of your children and beyond.

 

Planning for the welfare of minor children after your death is neither simple nor pleasant to consider, but it’s absolutely necessary for peace of mind. Determining the right person(s) to be the guardian of your children requires careful thought, but you don’t have to sacrifice your children’s inheritance for their proper care. With the right financial plan, you can manage both facets successfully. As always, we’re here to provide assistance and explain your options. Call our offices for an appointment today.


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From our office in Gainesville, the estate planning firm of White, Crouch & Mills, P.A. advises and represents clients in communities throughout Alachua County, Marion County, Levy County, Putnam County, Clay County, Bradford County, Union County and Gilchrist County in North Central Florida. Call us at 352-372-1011 or contact the firm by email to arrange an initial consultation with us today.



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