If you are confused about setting up legal documents and plans for your minor kids, you are not alone. Follow this guide to learn more to empower you to secure your family and kids. Most parents know they need to do something. But, in response, they experience confusion over making the right choice and fear over how much it costs to accomplish their goals. Others try to draft legal documents on their own. Those over-simplified plans often reveal blind spots in the planning sometimes too late.
In reality, almost all parents feel some sort of stress over this area. They know in their heart of hearts that they must do some planning, but procrastinate on it. After all, there is always something else happening that seems to take higher precedence. When we deal with minor children, parents usually do not want assets passing to them outright as expensive guardianships would need to be created. Actually, even when the child is not a minor, there is a widely-held belief that children lack the maturity necessary to take total possession and control of funds until they are somewhat older. To address these issues, inheritances are often left in trust until the child reaches a certain age.
This guide discusses the difference between the legal documents so families can end the confusion and make the best choice for their kids. As you learn, feel free to check out our Online Course Portal through Florida Lawyer Online to acquire knowledge of important topics at your own pace and from the comfort of your home.
Your Guide to Planning for the Security of your Kids
As parents contemplate how they will protect their children, they should start thinking about these things:
- If you and your spouse are out of town, who can authorize medical treatment for your child, if you cannot be contacted?
- Who will be the children’s guardian?
- Who will manage the money you leave to your kids?
- If there is an inheritance, at what age should the kids receive it?
- Is the inheritance contingent on any life milestones such as a college degree?
As you plan, you will start getting a feel for what types of documents you may need and what people in your life will play important roles with respect to caring for your kids, if needed.
The Need for Trusts
For Florida parents, confusion exists over whether their plan should include a Revocable Trust, or a Will with a Testamentary Trust. We actually have a course on this topic in our Online Course Portal called Estate Planning with Littles.
To remind you of the mechanics between the two legal documents, let’s briefly discuss how you would create each. With either a Will or a Trust, you are gifting your estate either 1) during lifetime with a Trust; or 2) at death with a Will.
The trust has become the preferred method of estate planning. A trust is a separate entity from its creators. The trust legally owns the assets, but the person who created the trust usually has control of it. Because the trust owns the assets, no probate is required to transfer the assets to the heirs of the person that died.
A Revocable Trust is effective once signed and formalized. You immediately place assets “inside” of the trust (like a bucket) or change your beneficiary designations so that the Trust benefits. In that way your assets are managed by the trustees and, if anything were to happen, the assets have continued management. Therefore, your kids would have a legal owner of the assets while they are young, and slowly, as they get older, the trustee would use discretion to give the children greater control of the assets. The trust is used for probate avoidance and also asset managemen
Trusts that Spring from your Will
On the other hand, you may create a testamentary trust inside of your Will. The trust would not really exist until after the death of the parents, and, at that time, the trust would be created if needed. During the life of the parents, nothing changes and they manage their assets as usual. Of course, though, at death, the trust is created through probate. Therefore, as probate is costly, the money left behind to your kids would be reduced to pay those fees/costs. Revocable trusts can be revoked, hence their name. On the other hand, testamentary trusts are irrevocable after death. A revocable trust has no creditor protection. After all, the surviving spouse can still amend his/her portion.
Popular Opinions as to Kid Protection
As many parents go back and forth between the better of the two, I asked the opinion of some estate planning lawyers regarding their best advice for Florida parents deciding between a Will and a Trust.
One attorney said she would vote for a revocable (“family”) trust because it’s easier for naming the trust as a beneficiary in most cases, and it is a more convenient mechanism for allowing other family members to give gifts/devises to minor children. She went on to say that in Florida, probate can be a misery, so it is great to use a Revocable Trust to avoid it. To keep the costs down, she would recommend a joint trust.
Another attorney stated that it really depends on whether minimizing court exposure is important to the parents. She added that testamentary trusts can make sense if there are not significant assets and the parents are comfortable distributing the money at a relatively young age (otherwise, there is long-term court oversight). With a revocable trust, your assets stay private. Another attorney agreed that if you choose a testamentary trust, all assets will be part of the probate estate, and therefore, subject to creditors and attorney’s fees calculation.
All of the attorneys agreed that regardless of what you choose, a court must open a guardianship for your minor children in the event of simultaneous death. The guardian and the trustee may be the same person, but need not be. You may want to choose separate ones for a “checks and balances” to make sure each party does their job properly. A guardian takes physical custody of the child and continues with the ordinary course of life such as church, school, and medical care. The trustee oversees the inheritance of the child.
Florida Homestead when you have Kids
As to the Florida homestead, most attorneys agreed that it is not appropriate to change the ownership of the home to the name of your Revocable Trust. One attorney noted that if there are minor children, the home must be devised to the child through a guardianship, as opposed to the trust. Another noted that homestead creditor protection is so important in Florida. Even if the spouses owe a creditor jointly, even though the creditor can recover against other joint assets the creditor can’t touch the homestead (unless it is IRS or loan secured by house). While most attorneys agree that the creditor protection would not likely disappear if you place the home in a trust (some attorneys noted they would not chance it), most found that the constitutional devise restrictions on homestead property would not allow the home to be devised into a Trust upon the death of the parents.
One attorney added that she never puts the homestead into the trust. She added that she recently had a situation where trust clients passed away while they had a minor child. After they passed, the attorneys worked to get the home into the existing trust.
Other Important Documents
Keep in mind that either vehicle (Will or Trust) requires ancillary documents. Financial and healthcare power of attorneys are of the utmost importance. Additionally, a living will helps to alleviate conflict among family members regarding proceeding with extraordinary measures when a family member is going to pass.
Pro Tip
You cannot underestimate the benefits of a good term life insurance policy for mom and dad.
We hope this was helpful. Do you like learning? Check out our Online Course Portal to take free courses.
Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.