By Staci Toji, Esq.
Staci Toji
On May 19, after over a decade of dating, I married my high school sweetheart, Justin Toji. We wed at a private estate in Malibu and then spent two blissful weeks honeymooning in Mo’orea, French Polynesia.
Amidst all of the congratulatory wishes we received for the wedding, we were also asked the same question repeatedly: “So, when are you having a baby?” To which we answered, “Not yet!” Although we do plan on having children in the future. In the meantime, we have our two German Shepherds that we treat like children until we have real, human babies of our own.
So, while we aren’t parents right now, we are at the age when many of our friends are getting married and getting pregnant. With them in mind, I wrote this article to detail some of the things that young families should consider.
Name a Guardian for Minor Children
If you have a minor child, it’s crucial to create a legal document that nominates a guardian (or guardians) who will gain custody in the unlikely event that something happens to you and your spouse. Without doing so, a court will step in to make that decision for you.
Although it’s morbid to think about your own demise, it’s important to discuss these things with your spouse for the benefit of your child’s future. I’d recommend sitting down and having a conversation about who the best person (or persons) would be to take care of your child. Should you name your parents who are creeping up in age? Or your sister who lives out of state and has three children of her own?
When selecting a guardian, consider who would be willing to take on the responsibility of raising your child. Think about the prospective guardian’s age and health, physical location and parenting philosophy. Hopefully, these decisions will never be executed, but it’s imperative to have them in place just in case.
Designate Life Insurance Beneficiaries
One of the main reasons why people buy life insurance is to make sure their loved ones are financially cared for in the event that something happens to them. With young parents, health-related emergencies like a heart attack or stroke aren’t the primary concern. Instead, they worry about car accidents, plane crashes and other freak incidents — situations that generally tend to cause simultaneous deaths with spouses.
With this type of scenario in mind, a parent typically names his or her child as the beneficiary of their life insurance policy (assuming the spouse has also passed). Since a minor cannot own property, the life insurance company will not pay the proceeds directly to the child right away. Instead, a court will have to intervene to establish a custodial account, which will only allow the child to receive the money upon turning 18 or 21 (depending on the state).
The problem with that is that the child may, in your opinion, receive the proceeds too early or too late. Many parents feel that 18 or 21 is still too young an age and too irresponsible of an age to receive tens of thousands of dollars. On the other hand, the child (or the child’s guardian) may need those funds in the meantime for food, clothing, housing and other expenses of ordinary living. Either way, you are not in control over when your child will receive and be able to use the proceeds.
There are several simple solutions to either predicament. The first is to create a Revocable Living Trust and name it as the beneficiary of your life insurance policy. Through the Trust, you can specify at what age your child will inherit the proceeds.
For example, you can stipulate that 50 percent will be distributed at age 25, and the remaining 50 percent will be distributed at age 30. Additionally, you can insert provisions that will allow your child to dip into his or her inheritance for health, education or basic support needs.
Alternately, you can name a custodian over the policy and create an account under the Uniform Transfer to Minors Act (UTMA). Essentially, what you’re doing here is naming a trusted person (a sibling, family friend, etc.) to manage the funds until your child turns 18 or 21.
Whether you go the Trust or UTMA route depends on your personal situation (e.g., tax implications, concerns over money mismanagement, etc.). You can always seek the advice of a professional to see what’s best for you and your family.
Selecting a guardian and designating life insurance beneficiaries are just a couple of items on the checklist for what young families need to consider.
To learn more, consult with an Estate Planning attorney to make sure you and your family are properly prepared for the future.
Staci Toji, Esq., is an estate planning attorney at Elder Law Services of California. She can be contacted at (310) 348-2995 or staci@elderlawcalifornia.com. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or JACL. The information presented does not constitute legal or tax advice and should not be treated as such.
