Choosing the guardian for your children is one of the most important and difficult decisions you will have to make as part of your estate plan. You have to trust your nominated guardian as a parent but also financially. IRAs and annuities are some of the more difficult types of assets to deal with in your estate plan, and merging that planning with your guardianship decisions is vital to make your estate plan, and raising your children, work property.
This situation has a lot of moving parts, so let’s break it down.
The Question of Guardianship
The good news is that you do not actually need to give your guardian control over finances. You can name someone to be the guardian acting to raise your children, but you can name someone else to handle finances. Yes, this is obviously a less efficient situation and you have to make sure these two people can work well together, but it prevents mistakes and financial abuse. This is a good option because there may not be someone in your life that you trust to completely replace you; now you can spread out your daily duties to multiple people and play to their strengths.
The best financial option is to use a trust to manage finances. A trust allows you to make decisions about distributions and what circumstances allow for a distribution from your assets. You can tie distributions to age, life events, successes, values, experiences, and other factors and can last for as long as you want. This can help make sure that your property will be sued for your family when they need it.
Passing an Annuity to the Children
Annuities pay a set income to you or your spouse. Some annuities continues payments even after you have passed away. Annuities are very flexible and have many options, so work with your financial advisor to choose the best one. You can use annuities as a steady stream of income for your children with or without a trust. For minor children, income than can help take care of their needs when they cannot work for themselves can be especially important.
Transferring an IRA to the Children
Individual Retirement Accounts (IRAs) can pass along wealth to your children while simultaneously growing in size.
When you name your children or your trust as beneficiary of an IRA, you set up how the IRA will act after you pass. Your oldest child’s life expectancy will be used to determine the size of distributions, and the rest of the IRA can be invested and grow. Work with your financial advisor when selecting which IRA to use, and work with your estate planning attorney to protect your IRA from creditors, predators, and spenders through an IRA (or Standalone Retirement) Trust.
Final Thoughts
Making these decisions while your children are vulnerable can be very hard, but it gives you peace of mind. Deciding who will raise your children and who will control finances is incredibly important, but it does not have to be the same person. Contact The Rains Law Firm or schedule a complimentary initial meeting to get help in making these decisions for your children.