Young adults with small children rarely think about the unthinkable – what will happen with their children if they get incapacitated or pass away? A hypothetical example can illustrate how complicated things can grow when a living trust is not established for minor children.

Robert and Brenda have two children – Tom and Lisa. They have a house valued at $400,000, with a mortgage of $300,000. Robert has a 401K retirement plan valued at $300,000 and Brenda has an IRA estimated at $60,000. Their bank accounts have some $40,000 in them and Robert’s life insurance policy amounts to $600,000. Their retirement plans and the insurance policy have spouses as primary beneficiaries and children as contingent ones. However, Robert and Brenda have no estate planning.

Unfortunately, Robert and Brenda get killed in a catastrophic auto accident. Their children inherit the house, their retirement funds, the life insurance and the bank accounts. However, because of their age, they are unable to access the funds. Because there is no estate planning, things have to be resolved in court.

Guardianship has to be resolved first, since the tragically deceased failed to draw up and sign a Nomination of Guardianship. If Robert and Brenda both have siblings or family members keen to take custody of the children, Tom and Lisa could get separated.

A probate proceeding would be necessary if Robert and Brenda had failed to write a will that includes their children. Also a proceeding for Guardianship of the Estate will establish who is to take care of the retirement funds, the accounts and the insurance until the Tom and Lisa come of age. If a family member is not appointed the Guardian of the Estate, a Private Fiduciary can be appointed by the Court.

All these proceedings mean attorney fees and court fees have to be paid, which can eat away at a significant portion of Tom and Lisa’s inheritance. The saddest part is that all those legalities can cause family members to contend, which complicates the issue, plus leaves a mark on Tom and Lisa’s childhood. Finally, what often happens when the heirs reach the age of 18 and access their inheritance is they waste the money on partying, cars and having fun, without thinking about the future.

If Robert and Brenda had created an estate plan on time, they could have protected their children from being dragged through courts and their children’s inheritance from being chipped away by what could have been prevented.

A Living Trust fund would have protected their assets – the home, the retirement plans, the bank accounts and the life insurance. The trust would have been managed by a trustee of their choice. Such an arrangement would have avoided the need for a probate and the guardianship proceedings and wouldn’t have depleted the funds through attorney fees. The funds could have been used for Tom and Lisa’s education, maintenance, support and health insurance. Also, they could have been allowed to access the money once they had employment or the funds could have been distributed for Tom and Lisa’s access when they were 25, 30, 35… The Trust would also have determined who was to be the children’s guardian.

Setting up a living trust or a family trust is the wise things to do, especially if one has children. The trust can protect the children not only in the financial aspect, but psychological as well. If you don’t have a family trust and you are thinking of setting it up, it’s best to ask an expert trust attorney San Diego for more information. Don’t hesitate to call the Law Offices of Irina Sherbak, APC at 858-208-8900 for a free 30-minute consultation and have all your questions answered.