Estate Planning for Young Families

November 28, 2012
Updated on December 2, 2020

Many young families put off estate planning. If asked, they may say they are too young, healthy, or cannot afford it. Some have trouble even thinking about what could happen if they were to pass away while their minor children and spouse are depending on them. But even a healthy, young adult can be taken suddenly by an accident or illness, and those with young families need estate planning precisely because others are depending on them.

Of course, you are not expecting to pass away while your family is young, but planning for the possibility is prudent and responsible, and it shows your family how much you care. Not having an estate plan can have disastrous consequences for your family.

A good estate plan for a young family will include naming someone to administer the estate (an executor) and trust (a trustee), naming a guardian to care for minor children, providing instructions for the distribution of your assets, and naming someone to manage the inheritance for the children until they become adults or otherwise reach the age that you select. It will also include reviewing your insurance needs and planning for disability.

Naming an Executor for Your Estate and a Trustee for Your Trust

This person will be responsible for handling your final financial affairs—locating and valuing assets, locating and paying bills, distributing assets, hiring an attorney and other advisors—so it should be someone who is trustworthy, willing, and able, and who knows you and will carry out your wishes. If you are married, this might be your spouse. You should also consider successors to the initial person you wish to name.

Naming a Guardian for Minor Children

If something happens to one parent, the other parent will continue to raise the children (unless the other parent is physically or emotionally unable to do so). But who will raise them if something happens to both of you? This is often a difficult decision for parents, but it is very important because if you have not named a guardian, the court will have to appoint someone without knowing your wishes, your children, or your family members.

Providing Instructions for Distribution of Your Assets

Most married couples want their assets to go to the surviving spouse if one of them dies. If both parents die and the children are young, they want their assets to be used to care for their children. Some assets will transfer automatically to the surviving spouse by beneficiary designations and how title is held. However, an estate plan is still needed in the event the surviving spouse becomes disabled or dies so that the assets can be used to provide for the children.

Naming Someone to Manage Your Children’s Inheritance

Unless you include this in your estate planning, the court will appoint someone to oversee your children’s inheritance. This will likely be a professional guardian and a stranger to your family. It will cost money, which will be paid from the inheritance. Also, the children will receive their inheritance (in equal shares) when they reach legal age, usually age eighteen. Most parents prefer that their children inherit when they are older and to keep the money in one “pot” so it can be used to care for the children’s different needs. Establishing a trust for your children’s inheritance lets you accomplish these goals and select someone you know and trust to manage it. This may be the same person you name as guardian to raise and care for your children, but it is not a requirement.

Reviewing Insurance Needs

Part of the estate planning process is reviewing the amount of life insurance on both parents. Income earned by one or both parents would need to be replaced; also, one or more people would probably be needed to take over the responsibilities of a stay-at-home parent. Additional coverage may be needed to provide for your children until they are grown, and even more if you want to pay for college.

Planning for Disability

It is possible that one or both parents would become disabled due to injury, illness, or even a random act of violence. This should be planned for as well. Both parents need healthcare powers of attorney that give someone else (often called a healthcare agent, surrogate, or proxy) legal authority to make healthcare decisions for them if they are unable to do so. You would probably name your spouse to do this, but one or two successors should also be named in case your spouse is also unable to act. A Health Insurance Portability and Accountability Act (HIPAA) authorization will give your medical providers permission to discuss your medical information with others (parents, siblings, and close friends). Disability income insurance should also be considered because life insurance does not pay in the event of a disability.

Putting Your Plan in Place

Estate planning will require you to think about family relationships, and some decisions may be difficult. But an experienced estate planning attorney will be able to help you through the process, provide valuable guidance, and make sure your plan will do what you want when it is needed. If finances are tight, as they usually are for young families, start with the most essential legal documents and term life insurance, then update and upgrade your plan as your financial situation improves. The most important thing is to not put this off. Not having a plan can result in a worse financial situation for your family caused by court costs and delay in accessing your assets. Once your plan is in place, you will have peace of mind that your family will be protected if something should happen to you.