3 Ways to Protect Your Children After You Die

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Parents want to make sure their children are cared for and protected—even if the parent dies. With the right legal and financial tools in place, it’s possible to do just that. If your children aren’t yet independent adults, here are three steps to consider to get them protected:

1. Give your life insurance a once over

Life insurance is a contract between a policy holder and the insurer, to pay out a set amount to a designated beneficiary. Life insurance can cover funeral expenses and the cost of closing a loved one’s estate (such as paying outstanding debts or hospital bills). But the money can also act as an income replacement, so your family’s able to weather the transition with less upheaval and financial stress.

Yet many people don’t realize that life insurance shouldn’t be a set-it-and-forget-it endeavor. As your family expands or your financial obligations increase (say, a bigger mortgage or enrolling in private school), your children may need a larger payout. A 2015 Bankrate survey found that six in 10 Americans own life insurance, but almost half of them have insufficient funds to address the financial needs of their family upon their death. Around 47 percent of people with life insurance surveyed said their coverage amounts to $100,000 or less, which includes 21 percent of respondents with a benefit amount of less than $25,000.

An online calculator can help you estimate how much life insurance you need to protect your family. If you already have a term policy in place, you won’t be able to increase the payout on that policy, but you can add a second policy.

When sizing up your insurance, take a minute to also review your beneficiaries. Legally, minors can’t be beneficiaries (in some states the cut-off is 18, in others it’s 21). That means if you list a child as your beneficiary, the court will appoint a guardian to handle the money—a costly process that can eat away at some of the policy proceeds.

There are a few workarounds to consider, including establishing a custodianship with the life insurance company or creating a trust fund that can receive the life insurance proceeds on your child’s behalf. A brief meeting with an estate attorney can help you figure out which option is best for your situation.

2. Create a will

A will alone won’t let you skip the probate process (you’ll want a trust for that), and even without one your estate would likely pass to your spouse and children (thanks to state intestacy laws). Still, having a will in place is the best way to ensure that your assets are passed on exactly how you’d prefer. But most Americans don’t have this essential paperwork in place: A 2016 Gallup poll found that only 44 percent have a will that describes how they would like their money and estate handled post-death.

Don’t want to split things equally between your children? Want to ensure your stepdaughter is taken care of? Need to carve out something for your half-sister or set aside something extra for your child with special needs? The will is the place to spell out exactly how you’d like your estate divvied up.

If your children are under 18, a will is also where you’ll name a guardian to care for your kids in your absence. You can also specify back-up guardians (if, say, something happens to the first person you pick before your death or that person is unable to care for your kids). And if you worry that the best choice for caring for your kids won’t be the best choice for managing their money, you can name someone else as a custodian or trustee to manage the child’s inheritance.

3. Establish a trust

Even if you have ample assets to pass on to your children, leaving money to minors can be legally tricky. Kids can’t access funds for their own care, which means a court-supervised conservatorship usually provides oversight. But administering these accounts—from requesting funds to tracking expenses to ensuring proper oversight—can be costly, and it’s the child’s inheritance that foots the bill.

To avoid that legal oversight and financial burden, many parents establish a trust. There are two types to consider: A testamentary trust is detailed in your will but doesn’t actually exist while you’re alive; only upon your death does the executor of the estate create the trust and move some or all of the assets from your estate into that trust. A living trust, as the name suggests, is established and funded while you’re alive.

A trust allows you to skirt the court’s oversight while leaving any assets in the trust until your children reach your state’s “age of maturity,” which is typically but not always 18. But a trust can be incredibly flexible: If you’re worried your children won’t manage the money wisely, you might spread disbursements among timed increments of every five or 10 years (so they get half the money at age 25 and the other half at age 30, for example) or specify that funds are only spent on certain types of expenses (like education or a home purchase). You can detail that oversight into the trust.

If you have a child with special needs, you should also look into establishing a special needs trust. This type of trust can provide for a child’s specific needs and lifestyle, while helping to ensure that a lump-sum inheritance doesn’t disqualify him or her from receiving government benefits and support.

When establishing the trust, you’ll list a custodian to financially manage the distributions made to your children (or to spend them on their care, if they’re still underage at the time of your death). One thing to note: Trusts may not make sense if your estate is fairly small, as meeting with attorney to work through the paperwork may cost several hundred dollars.

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