If you have young children, creating a will isn’t just a good idea – it’s essential. While a will helps provide for your spouse, its most important role for young families is protecting and providing for your kids. Even if you don’t have significant assets today, you can still set up a trust worth $1 million or more for your children in the event of an untimely passing. How? By combining a well-drafted will with affordable term life insurance.

Why you need one

If you have kids (and even if you only own an iPhone and pickup truck), you should have a will. In the unfortunate event of an unexpected passing without a will, the state will determine how your assets are distributed. This means you don’t choose who is in charge of your estate, and it means that costs will be generally higher after death as heirs work through the administrative details of settling your estate.

You either get to create your own plan, or the state provides the default plan for you.

One common myth is that the state gets your assets if you fail to create a will. That is not true. The state just says where your assets go (they generally go to your family). But the will allows you to govern the process, pick the guardian for your children, and dictate the terms of the hypothetical $1 million trust for the children. This type of trust is sometimes called a testamentary trust.

Providing for your kids

Children under 18 generally can’t inherit your assets. Here again, the state offers some default rules to hold assets going to a minor in a custodial account.

A better option is to include a trust in your will that specifies who is in charge (known as a “trustee”), what the money can be used for, and when the beneficiary child can have the money free of the trust.

A common type of trust for a child would provide something like this: “All the assets will be held in trust for the benefit of my children until the oldest child attains the age of 28 at which point the assets will be distributed equally among my children.”

Further, “until the time of distribution, the trustee shall distribute assets for my children’s health, education, support and maintenance.”

The trust protects the inheritance and provides necessary funds to accommodate the children’s needs. Importantly, while held by the trust, the assets are protected from creditor claims.

Make it affordable

How can a young family afford the $1 million trust for their children? Even a person on a moderate income can provide for their family by obtaining inexpensive term life insurance. The cost of a 20-year term life insurance policy might run in the range of (give or take) $30 to $50 a month. It’s a great way to fund the trust for your kids discussed in the preceding paragraph. And, if you have other assets, you can lower the death benefit to achieve your desired trust funding level.

Coordinate beneficiaries

It's important to make sure the trust aligns with the beneficiary designation on the term life insurance policy and any other assets (like retirement accounts). You will often see the contingent beneficiary stated as something like “the Trustee of the Trust established under Article IV of my Last Will and Testament.”

This is how you can direct the insurance proceeds to the appropriate trust to benefit the kids. The alternative (simply naming the kids individually) leads to less advantageous results because it bypasses the trust that you thoughtfully established for the children’s benefit. This is a common mistake.

Peace of mind 

A will containing a trust for children likely will serve your needs for many years.

It's worth the investment and is not something you will likely need to update for a long time. By investing in both the will and the term life insurance, you get peace of mind that your children will be well provided for in the unfortunate event of a death.

Talk to a qualified estate planning attorney and a financial advisor. It’s a small investment for lasting peace of mind.

Beau Ruff, a licensed attorney and certified financial planner, is the director of planning at Cornerstone Wealth Strategies, a full-service independent investment management and financial planning firm in Kennewick.