If you have minor children, be sure your will has these provisions

The importance of drafting a valid will and the kindness that it shows to your loved ones when you pass away cannot be overstated.

If you do not have a will, wills week between 16 and 20 September provides an opportunity for you to get one free from participating legal and fiduciary practitioners.

Whether you have a will or not, it is worth considering whether you have made adequate provisions for your minor children should you no longer be around to spend tomorrow with them.

Here are some of the important factors to consider if your children are still under the age of 18:

Guardianship

Aside from the financial measures you need to put in place to be prepared in case you and your spouse pass away, it is important to ensure that you make provision for a guardian for your minor child or children.

You can use your will to name a guardian.

Make sure that you also have the conversation with the nominated family member or friend so that they are aware of your wishes and the responsibility that they may need to take on.

Be clear as to how this will impact their life and financial situation and prepare as best you can to assist in funding those changes and to provide for your child or children’s needs.

A testamentary trust

Many parents would like to provide financially for their children in the event that they are no longer around to do so, but we should also ensure that the money left to them is managed properly and sustainably.

If your child is a minor, it is important to ensure that provision is made in your will for a testamentary trust.

If not, the funds that a minor inherits will be paid to the Guardian’s Fund which will administer the money on their behalf and for their benefit.

While this is intended to be for the benefit of minor heirs, there have been many examples of guardian’s experiencing administrative difficulties when dealing with the Guardian’s Fund, resulting in many children not being provided for as they should be.

By making provision for a trust in your will, you will be able to nominate the trustees who can administer the money for your children and you can stipulate how you would like your children to be provided for.

For example, if you have enough to provide for their living costs, education and medical needs, you may specify that you would like them to have access to capital for an overseas trip when they graduate, a car when they start university, etc.

You will also be able to specify when the capital amount should be paid to your children. While your children may be old enough to vote at the age of 18, they may not be wise enough to manage the money in the best possible way for their futures?

Many trusts continue until the beneficiaries reach the age of 25 or 30, after which the remaining capital can be paid out or the trust may continue.

Life cover

Many parents find themselves in a position where they are saving towards retirement using a retirement fund while their discretionary savings (investments outside of retirement funds and property) are used for short-term goals and emergency or ad-hoc expenses.

It is important to understand that it can take a long time for retirement fund benefits to be paid out or to realise the value of your home in a sale.

If you have life cover in place, it may release funds quickly and spare your child or children and their guardian waiting for funds tied up in your estate or a retirement fund. This means you can provide for your children’s immediate needs until they receive their inheritance.

The proceeds of your life cover can also be paid to a testamentary trust, if you have provided for one in your will.

Alternatively, if you are certain that the money will be managed properly, the proceeds may be paid directly to the guardian you nominated for your children in your will.

Sometimes life cover is also necessary if you do not have sufficient assets to provide for your children’s needs in the event of your death. This includes their daily cost of living, medical expenses, education costs (which may need to be provided for in order for them to study up to a Masters level), the provision for home renovations for them to live with their guardian or an increase in rental expenses for a bigger home, etc. It is important to consider all of the factors that will require funding.

Seek advice

Providing for your children in the event of your death is a lot more than just a financial responsibility. There are many factors that should be considered and many complications that may be encountered, and if something should happen to you, you will not be around to solve it.

Speak to a financial planner and a fiduciary specialist to help you plan accordingly and to make sure that your will is structured to ensure that your wishes may be brought about in a practical and efficient way. Preparing for this is a kindness to your children and your loved ones.