Succession planning for minor children is a must. In an unfortunate event of demise of both the parents, a properly drafted Will would ensure that the parents appoint a guardian of their choice for the minor children. In absence of a will or if the will is silent with respect to guardianship, the court will appoint the guardian and court chooses someone who it thinks is competent to be a guardian of minor child without knowing the preference of parents. This may cause disputes among relatives of the mother and father of the child on guardianship claim, leaving the child feeling emotionally stressed; and eventually it may result in guardianship being granted to a person whom the parents wouldn’t have chosen.
While appointing a guardian for a minor child one may choose a separate guardian for personal care and custody of the child and a separate guardian to manage the property which the child will inherit from parents. For example, if a child lives with his grandmother, she can be appointed as guardian for personal care and the child’s uncle can be appointed to manage the property until child attains the age of majority i.e. 18 years or above. Hence, choosing a right guardian will require careful deliberation by the parents and guardian should be someone who shares the values, life priorities and have an established relationship with your child.
The appointed guardian will manage the property you leave behind only until the child attains the age of eighteen years. There are certain restrictions to deal with immovable assets left by parents for the benefit of minor child. The guardian cannot sell, transfer, gift or mortgage immovable assets without the court’s permission and court grants such permission only if it is necessary for the best interest of child. Therefore, having investments in sufficient financial assets also becomes important.
It is extremely important that as part of the overall financial planning for the family, specific plan may be prepared for children. This planning should address the requirements for education, healthcare, travel, marriage etc. of the children so that sufficient funding is available for these critical events in future.
As soon as child turns eighteen, he becomes legally independent to inherit and manage every penny you leave behind. At such young age the child may not have the skill and knowledge to invest your hard-earned property which you have kept for the well-being of your child and he may squander the money by taking wrong investment decisions. In order to avoid such mishaps, parents can create a testamentary trust (trust created through a Will) to hold these assets even beyond the age of majority for the benefit of child. The trust will provide guidelines to the trustees for investment, administration and distribution of assets for benefit of minor child and even afterwards. The trust would provide for child’s day to day expenses, health, education and support. It could provide that your child will have the ability to withdraw funds when they are older and wiser, say 50% to be withdrawn at age 25 and balance at age 30. The trust can mention that the trustees shall endeavor to invest the trust assets in risk free products which will generate a regular cash flow to meet day to day expenses and build a corpus to fund expenses for education, buying a house, marriage expenses etc. Enough discretion shall be given to the trustees to provide for the best interest of the children under changing circumstances. If the parents outlive beyond the age of minority/maturity of the child, then such a trust may never get created and the children can inherit directly. For larger estates creating an inter-vivos trust (trust created during lifetime) would be more beneficial which will continue for a longer time and can provide protection of assets from matrimonial and creditor claims.
It is also important to impart financial literacy to children about family wealth, investment strategies from a young age during regular conversations so, that he can invest the wealth smartly in your absence
