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 separate people to serve each function, naming one as the guardian of the person and another as the trustee 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 fiduciary model gives many parents peace of mind.

For many families, a trust is the best strategy for financial management for the children. 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 and the assets are budgeted appropriately.

Passing an Annuity to 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.  Better yet, you can also name a trust for the benefit of your children.  Annuities are a very flexible financial product with many different options depending on your annuity contract. If you have an 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.

Transferring an IRA to Children

Individual Retirement Accounts (IRAs) are also excellent vehicles to pass along wealth for minor children’s welfare—because, unlike most annuities, they have the ability to grow over time and can provide a lifetime of financial benefit to your children. Because the required minimum distribution payments to the children will be smaller than they would have been for you, the account balance can remain invested for growth over time. With an IRA trust we can work with you to make sure that the IRA is fully protected against creditors, predators, and bad financial decision making.

 

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. As always, we’re here to provide assistance and explain your options. Call our offices for an appointment today.

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