Estate Planning Alert: Avoiding Probate on Children's Assets
Arranging assets to avoid probate is an important step in the estate planning process. Assets that often are forgotten during this step are those already pertaining to the children, such as custodial (UTMA) accounts, Section 529 college savings plans and life insurance policies on the children.
For custodial accounts, a parent is typically the custodian. If possible, the account should designate a successor custodian (e.g., the other parent); otherwise, one must be appointed through the probate court. Section 529 plans may or may not provide for a default successor owner upon the death of the original owner; if not, a successor owner should be designated (unless a trust is the original owner) to avoid subjecting the account to probate. Life insurance policies on children's lives typically are owned by one of the parents, and will generally be probate property if the parent dies first, unless a successor owner (who should also be the contingent beneficiary) is named. The same situation can arise, and the solution is the same, when a child owns a life insurance policy on the life of a parent and the child dies first.
Another problem can arise when two or more children own a policy together on the life of a parent. Such ownership is nearly always "joint and survivor," meaning that, if a child dies first, his or her interest in the policy passes to the other joint owner or owners. This generally is contrary to the parent's estate plan, which typically provides that a deceased child's share goes to the child's children. The solution is for each child to name a contingent owner and beneficiary for his or her interest in the policy.
Careful attention to the above matters can avoid the expense and delay of probate on assets pertaining to children and ensure that these assets will pass to the intended beneficiaries. Should you have any questions regarding probate avoidance of children's assets, please contact an attorney in our Estate Planning Practice Group.