Protect Your Children's Future

23 May 2014

As a parent, I am always thinking about what's best for my children. But have you thought about what might happen if you're no longer around? It's not a pleasant subject, but it is important. Planning for your children's future is even more important if you're not around to help.

Use Life Assurance to protect Income
As a parent, you should consider a financial protection plan that includes Life, Disability, Severe Illness, Income Assurance and a Medical Aid. Determine how much capital or income is necessary to help protect your children or other beneficiaries. For example, money may be needed to help maintain a home for children, pay for education and other expenses in the event of the bread winner's death or disability. This financial protection plan should be coordinated with a Will.

Have a valid Will
Your Will needs to make sense so keep it simple. Make sure it is written in a way you understand. Many people make the mistake of trying to rule from the grave, which complicates the Will and makes it difficult to execute. Review annually.

Use Trusts to safeguard their Future
While a child may become an adult within a few years, he or she may not be mature enough to handle investments or manage property. Trusts protect assets you intend to pass on to children, no matter their age. Trusts are used extensively in estate planning. What can be confusing though, is that there are two different types of Trusts. An Inter Vivos Trust is created while you are still alive in order to peg one's estate for estate planning purposes. A Testamentary Trust is created in a Will in order to protect inherited assets for the benefit of, typically, one's minor children. This type of Trust is created in your Will and only comes into effect upon your death.

The reasoning behind creating a Testamentary Trust for minor children is that persons under the age of 21 may not inherit assets directly. Failure to create provision for a Testamentary Trust will result in the Master of the High Court controlling these assets and all monies are placed in the Guardians Fund. In essence, when you create a Trust in your Will, you appoint trustees to look after the assets you leave behind until your beneficiaries (heirs) have reached the age stipulated in your Will.

Advocate Ken Silke says: "It is very important to choose your Trustees carefully in your Will as these people must have knowledge of prudent investment and must also use their discretion judiciously in looking at the best interests of minor children."

Most Testamentary Trusts provide that minors can be paid income until age 21 and that the full capital shall only pay out when the child turns 25 and the Trust dissolves. However, you can stipulate any age at which you would like your children to receive their assets from the Trust as long as it over the age of 21. If a child is, for example, physically or mentally impeded, the Trust can be worded to expire on that child's death. In the normal course of events, a child's guardian will inform the trustees what money is needed for, such as school fees or monthly maintenance costs. The trustees pay out the money at their discretion after due consideration.

It's a good idea to appoint a family member as co-trustee for the personal touch. There's nothing to stop your child's guardian from being a Trustee; and the Trustee needn't be the executor of your estate. Having too many trustees, however, can make the running of the trust cumbersome.

Designating Guardians
Make sure you name one or more individuals to be the legal guardian of any minor child -- typically until the child reaches age 18. A guardian will have to make decisions regarding the care and upbringing of the child. The person(s) named should be consulted before the Will is drafted to be sure they are willing to accept the responsibility. Since the designated guardian may become unable to serve, it is also a good idea to name one or two successor guardians. You may name a different person to be responsible for overseeing your children's financial affairs.

Living Documents
All parents should have an up-to-date Power of Attorney and Living Will. A Power of Attorney basically gives another person the right to pay bills on your behalf and otherwise manage your finances according to the terms of the document. Often, married couples rely on each other to make these types of decisions. Although it is a difficult subject to face, you have options when it comes to protecting your estate and your family. The steps you take now can help prevent the wrong people from making decisions for your loved ones.

Invest in your children, teach them about financial planning through practical experience.

• Open a bank account.
• Start depositing money received by your children for birthdays and other special occasions, pocket money, money earned for chores etc. This is a good way to get a bank account up and running. Insist that half of any money received must be saved.
• Dig out an old-fashioned 'piggy bank', as my Gran referred to it. Preferably one made of clear plastic, which will ensure that children see their hard cash building up inside. This brings across the concept of money 'growing'. (And - no I.O.U.'s - Mom and Dad)
• Take your child to the bank regularly to deposit the money into his saving account - develop that culture of saving.
• If your child desperately wants something - let him save for it. Parents should set the example i.e. include your children in the planning and saving process that you go through for home improvements or holidays and explain the difference between month-to-month budgeting and saving for planned and unplanned events.

Such a savings plan is good for children as it involves making small and regular investments. Whatever investment goal you and your child decide on, regular investing will teach him or her commitment and restraint and show them first-hand how to reach their goals. Teaching wealth creation as a skill is up to us as parents - up to you, Mom and Dad. Remember - your children are watching you!

Many may think that they are not old enough or wealthy enough to warrant doing any estate planning. However, if you are over the age of eighteen, no matter how small your estate is, it is advisable to begin the process. Where a person is “at” in life, will determine your strategic plan for your estate, and which techniques to use in order to implement the plan. Each plan will be unique and structured according to your own set of circumstances, goals and objectives, and should be reviewed regularly to take account of personal and legislative changes.