Estate Planning for Parents of Young Children: A Practical Guide

New Jersey parents have a lot to worry about, especially when their children are young. That’s why I often hear phrases like “we haven’t thought about it yet” or “we will worry about it when the kids are older” when speaking with new parents about estate planning.

I understand the sentiment. The last thing a new parent wants to contemplate is what would happen to their children if they were no longer around. Many parents tell me they feel covered because a family member has agreed to step in if something happens, and they believe they have saved enough money to ensure their children are raised the way they would want.

While those steps are a good start, they’re not enough. What many new parents miss is that estate planning at this stage is not primarily about money. It's about making sure the right people are legally empowered to protect your children.

In other words, verbal plans are not sufficient. Even having a basic will, such as one created through an online service, is often not enough on its own. For parents of young children, a properly designed estate plan should accomplish several key goals:

• Officially name guardians

• Avoid unnecessary court involvement

• Control how your children’s inheritance Is used

• Plan for parental incapacity

  
  

Let’s take a closer look at each of these.

Officially Naming a Guardian

Just because a family member has agreed to take your children if something happens to you does not mean that they automatically become their legal guardian if you pass away. New Jersey has a strong interest in ensuring that minor children are properly cared for when their parents are no longer able to do so.

For that reason, guardianship decisions are ultimately made by a family court judge, who will consider all relevant circumstances to determine who is best suited to take on that role. One factor that carries significant weight is whether the parents formally named a guardian for their children in a properly executed last will and testament.

For parents of young children, formally naming a guardian in a last will and testament is essential.

Avoid Unnecessary Court Involvement

I just explained that all guardian decisions ultimately go through the court system. So what exactly do I mean by “avoiding unnecessary court involvement”?

Sometimes, the family members of a deceased parent do not agree on who should take over as guardian of the children. If no specific guardian is named in a properly executed will, that disagreement can turn into a court dispute. When that happens, the situation can become contentious very quickly, especially when the parents were divorced or there are complicated family dynamics.

It is also important to understand that even having a will does not completely eliminate court involvement. All wills must go through the probate process, which can be time-consuming and, in some cases, cumbersome for the family left behind.

If avoiding probate is a priority for you, adding a revocable living trust to your estate plan may be worth considering.

Control How Your Children’s Inheritance Is Used

Sometimes I hear parents say they don't need an estate plan because their family gets along, there is enough money set aside for their children, and everything will eventually go to them anyway.

This way of thinking overlooks several common problems that arise when a minor, or even a young adult, receives a large inheritance without any meaningful oversight. Let’s look at both scenarios.

Young child inherits an estate

You've worked hard and saved enough money to ensure your children can enjoy the lifestyle you want for them, even if you pass away before they grow up. The worst happens, and now your ten-year-old is inheriting a significant amount of money. What happens next?

First, a guardian will be appointed to raise your children until they are no longer minors. Then, absent a well-designed estate plan, that guardian may have broad discretion to use your child’s inheritance for what they believe to be the child’s benefit.

Is that necessarily a problem? Not always. If your chosen guardian is financially responsible and well-intentioned, they may use the money exactly as you would have, such as paying for education, clothing, and everyday expenses.

The problem arises in determining where the line is drawn.

A guardian cannot take your child’s inheritance and spend it on purely personal indulgences. That would be a clear violation of their fiduciary duty to use the funds only for the benefit of the child.

But many situations are not so clear-cut. What if the guardian buys a car so they can drive your child to school, and the car is very expensive? What if they renovate their home and justify it as providing a better living environment for your child?

You may be comfortable with these gray-area uses of your child’s inheritance. If you're not, then your estate plan should clearly define how the money may be used and who has the authority to make those decisions, whether that person is a guardian or a trustee.

This becomes especially important after a divorce, where the person caring for your child may be your former spouse.

With a well-designed estate plan, you can clearly define how your children’s inheritance is used and ensure it is managed in the way you intended.

Young adult inherits an estate

In this scenario your children have made it past the age of majority and are now in their late teens or early twenties when you pass away. The state considers them adults, and as such, in the absence of an estate plan stating otherwise, they will receive their inheritance outright and be free to use it however they please the minute they have it.

“So what?” You might be thinking to yourself. I get the sentiment, and perhaps your children will be responsible young adults that use their inheritance in a way that provides them with lasting financial stability and enables them to live the life you envision for them.

Unfortunately, in my experience this often does not pan out. Ask yourself this question: “If I inherited a six- or seven-figure sum on my 19th birthday, would I have had the maturity and financial literacy to make sure that it lasts?” I certainly would not have, and most of the people I speak to concur.

That’s why, when I work with clients to carefully design their estate plans, we'll often structure them so that a responsible adult oversees the inheritance until the children get a little older, perhaps reaching age twenty-five or thirty before fully taking control. The last thing any of us wants is to work a lifetime to provide for our children only to see that inheritance squandered in a few years of youthful indiscretion.

Planning for incapacity

This is where I see the most heartache and panic. Too often, people create a will online and consider the matter “handled.” But a will is not enough. Proper estate planning must also address what happens if you become incapacitated.

What does that mean? It means planning for a scenario where you are still alive but, due to an accident or illness, are no longer able to care for your children or yourself. In this scenario if there is no other parent capable of caring for the children, once again the court will determine who takes custody.

That decision, however, is separate from determining who has access to your money to care for you and your children while you are incapacitated. Instead, you either designate someone for that role in advance, or the court will make that decision for you as well.

As discussed above, this can lead to unintended consequences, such as giving access to your finances and even healthcare decisions to someone you would not have chosen, like an ex-spouse or a family member you do not trust.

It is important to understand that while you are alive, your will has no legal effect. For that reason, it is vital to plan ahead and put the proper documents in place to cover this scenario:

• Power of Attorney for Healthcare: Names the person who will make medical decisions for you if you cannot make them yourself.

• Durable Power of Attorney for Finances: Authorizes someone to manage your finances if you lose the capacity to do so.

• Living Will: Documents your wishes regarding medical treatment so your family and healthcare agent understand your preferences if they are ever required to make decisions on your behalf.

  
  

All of my flat fee estate plans include these essential documents.

A Quick Note on DIY Online Services

I want to address this option, as it may work for some people, but in my opinion it falls short in most scenarios, especially when planning with young children in mind.

DIY online estate planning platforms can be a great starting point for some people to fill in the blanks, get at least something in place, and save some money. But if you’re planning for young children, or if you want to be sure that the important choices you make when designing an estate plan are carefully considered, it’s best to work with an attorney.

When you work with an attorney, you receive guidance from someone with experience and training in evaluating your unique circumstances and identifying potential issues. You also get the assurance of knowing that someone is taking responsibility for your estate plan.

By this I mean that every time I design an estate plan for a client, I’m putting my name on it and stating that, in my professional opinion, it has been created correctly. This isn’t a baseless statement. There are real consequences for me as an attorney if I don’t do the work correctly for my clients.

This is not the case for a DIY platform. These services are, in most cases, providers of templates. Don’t take my word for it. Take a moment to read their terms and conditions and you’ll quickly see language along the lines of: “[DIY service] is a provider of forms and takes no responsibility for the outcome of said forms.”

Perhaps they will offer an opportunity for you to buy time with a lawyer to ask questions, but having an uninvolved attorney spend twenty minutes answering the questions you think you should be asking is not the same as working through the entire process with an attorney who fully understands your situation and goals.

For these reasons, I advise caution for anyone considering using one of these services in lieu of working directly with an attorney for their estate plan.

When Parents Should Start

If you’ve made it this far in the article, you can probably guess that I believe new parents should begin estate planning around the birth of their first child. But that’s not the only time to consider it. Many new parents are also in the midst of other life changes that should be reflected in an estate plan, including:

• Buying a home

• Starting a business

• Growing savings beyond “starter amounts”

Bottom line: the right time to start estate planning isn’t when you’re rich or everything is perfect. It’s when people depend on you.

Conclusion

Parents have a lot on their minds. The goal of estate planning isn’t to add to that burden, but to reduce it. If this article made you feel even more overwhelmed, I get it. These topics are heavy and require serious consideration and a clear understanding of how everything works.

That’s why I recommend you start by either attending one of my seminars or booking a free consultation directly with me. My seminars go into further detail about how estate planning works, how to decide between a will and a trust, and many of the scenarios that illustrate how and when an estate plan can be beneficial.

If you’re more interested in getting started right away and discussing your specific circumstances, click below and schedule a free video consultation. During that meeting, we’ll discuss your situation, answer your questions, and decide on the best estate plan to meet your needs. I look forward to meeting with you soon.

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