An Estate Plan For Cinderella's Parents

 

I saw Cinderella for the first time with my daughter recently, and though I (and likely you) were familiar with the outline of the story, we often forget the backstory. It starts with the disaster, specifically, an estate planning disaster in a world that does not need to worry about the estate tax or probate, or even lawyers.

You see, Cinderella’s mother died when she was a child. Her father decided to remarry a woman with two girls that are about the age of his own daughter. Cinderella’s father dies next, when she is still a child. He leaves the estate to his widow (the normal thing to do in the real world), who serves as Cinderella’s stepmother. This woman takes control of the estate for the benefit of herself and her own two daughters. Cinderella then, as presumably everybody who is reading this knows, is treated as a servant in her own home by the infamous wicked stepmother. Cinderella is now reduced to befriending rodents and birds with dressmaking skills.

What is interesting about the Cinderella backstory is how common it is. It is a theme that exists throughout all of human civilization and in stories from ancient times. Rhodopis is essentially the name of Cinderella in ancient Greece. There are many other versions of the story told throughout history around the globe. It is also well known that men are very likely to remarry when they become widowers, a social phenomenon that has been noted and studied for years.

The theme of subjugation of a child (in Cinderella’s case, being a presumably unpaid servant) using the orphan’s own assets is based on the inherent structural problems of asset succession, much of which cannot be addressed through legislation. The old manage the money of the young. This is often what leads to a version of the oppression experienced by fictional Cinderella. Of course, societies have attempted to remedy these concerns by regulating individuals and institutions known as “fiduciaries.” Minors are often represented in court by a “guardian ad litem.” Judges in probate court often presume to protect the interests of minors in what seems to many as a paternalistic system. Indeed, in some jurisdictions, probate court is known as “orphan’s court.”

The structural problems, however, can never really go away. For the most part, societies developed remedies that may be imposed when it is already too late. The presence of laws by itself will not completely stop men (or wicked stepmothers) from taking advantage of wealth when the opportunity presents itself.

Every year in virtually every jurisdiction in the United States with a sizable population there are cases involving breach of trust or similar claims relating to estates. The cost of such disputes could easily surpass the cost of probating a last will and testament or paying an estate tax to the federal government, if there was one.

The good news for people litigating with a competent attorney is that they actually have some sort of a claim that they can make to a court. Much of the time, affairs are structured so poorly that there is nothing anybody can do about the resulting injustice. It is common for spouses to own their property jointly, even widowers who remarry. Married couples like to name each other as beneficiaries in their retirement plans and life insurance, and they like to structure ownership of their homes in such a way that all of the property passes to the surviving spouse through the deed (joint tenancy with right of survivorship for example). They do the same with their financial accounts and everything else that they own. There is no probate, no trust administration, and no notice to anybody. The surviving spouse just gets everything. Often, even when there is a trust or a will, the spouse gets everything in a way that makes the Cinderella problem no less likely. Now in the era of portability and a high estate tax exemption where the vast majority of the U.S. population will never have to worry about the estate tax, this type of “estate planning” may threaten to become the norm.

Married couples often plan for their own convenience. When people plan their estates, they often think about their own mortality but not the consequences of the mortality of others and the results that may come from other unfortunate occurrences. Most have little to do with the government.

In the non-Disney world, wicked stepmothers are everywhere. We call them bankruptcy trustees, judgment creditors and yes, actual wicked stepmothers. The stories of modern-day Cinderellas are remade and retold every day throughout the country. The wicked stepmothers are often real brothers and sisters, uncles and aunts, people will assume the title of “trustee” or simply hold assets that should belong to others but have been usurped.

The parents of modern-day Cinderellas were not bad people in life; they often failed to properly plan. They certainly did not wish ill for their children. Though ill they wrought by not planning for things common in the human experience. An attorney and client, often with other advisors, collaboratively develop solutions for issues such as creditor protection, remarriage protection, guardianship and special needs. This type of planning requires attorneys as counselors. State legislatures and the Federal Government cannot write laws to protect families they have never met.

Litigation attorneys in the trust and estates world are not Fairy Godmothers. They may be helpful in fighting injustice and helping resolve the agony that occurs when there is a cause of action, something a lawyer can file in court in the first place. Unlike fictional Fairy Godmothers, litigation attorneys are paid. Litigation itself is not only expensive, but burdensome and difficult in a myriad of other ways. There is no guarantee that good estate planning will eliminate the risk of litigation, though all good estate plans certainly plan for risks that are known. Some risks have been known for thousands of years.

Fairy tales may end well because of magical fairies and rodents, but like Cinderella, they start with avoidable tragedy common to the human experience in a world without talking mice. A good estate planning attorney will help families avoid what could be avoided.

This article was original posted in estateplannin.com and can be seen here http://www.estateplanning.com/An-Estate-Plan-for-Cinderellas-Parents/

How to Leave Assets to Minor Children

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child attains the age of majority the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in your will and name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because a will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

Here is a great article from EstatePlanning.com

Letter to an Ex

By Martha J. Hartney, Esq.

Below is a fictional letter I drafted to a former partner because I know only too well what can happen when estate planning is not done properly—after divorce. I hope you enjoy this outreach to an ex-spouse or partner and consider taking steps to do everything this letter suggests for you. You can even send the link to your ex!


Dear Ex,

Though we’re not married (cohabitating, procreating) anymore, there are a few things I’d like to say about how you set up your affairs for our kids. You’re about to go on vacation, and I know you worry about being away from them and having an emergency or tragedy happen. I know I don’t have ANY say in how you set up your estate plan, but there are things that I’d like you to consider about the well-being and care of our beautiful children.

So please:

• Make sure your life insurance is up-to-date and your beneficiaries are listed properly. Don’t name our kids as direct beneficiaries! That will put them straight into a conservatorship where a judge will supervise their financial lives until 18, then they’ll get the assets outright in one fell swoop.
• Instead, leave your assets to them in trust, which will sidestep probate, keep the management of your assets private and in your control, and prevent the loss of those assets to our kids’ future creditors and predators and reduce the estate taxes that can take valuable resources away from our kids.
• Name a trustee that I can work with—someone you trust with your life—because your trustee will have to deal with me. If I were the only parent left, I would be legally responsible for ensuring the assets left to our children are properly managed. I would be looking at the annual accountings. I would be the one asking for court intervention if they are mismanaged or embezzled.
• Don’t leave your assets to our kids outright and don’t leave too much. There is nothing more damaging to a kid’s life purpose than having too much money at their fingertips. There’s a saying, “Leave them with enough to do something, but not enough to do nothing.” If you have a lot of assets, consider giving some to your favorite charity instead of the kids.
• Don’t cheap out on an estate plan. Whitney Houston did that. She bought a schlocky will that didn’t protect her assets from her daughter’s creditors, estate taxes, and probate. Please spend the money to get it done right. It’s really not that much in the scheme of things.
• Plan for a very long life. I know you want to leave our kids your accumulated wealth, but think of yourself first. We’re all living longer lives and, even though we’re not “in love” anymore, I do care about you and your welfare. Create a wealth plan that will give you a lifelong, passive income.
• Make sure you have disability insurance. Your ability to earn is your greatest asset. Nothing will diminish your wealth and put you in poverty quicker than not being able to earn money anymore. Even if you don’t need care, if you couldn’t work, you would run through savings quickly and may have to cheap out on things like your lifestyle, vacations, and even necessities like good, wholesome food or the roof over your head. Please don’t let that happen to our kids or to you.
• Get long-term care insurance. The person who is going to live to 150 is believed to have already been born! People will routinely live to be over 100, and that could be you. Long-term care is EXPENSIVE and it’s only going to get more so. Since you’re over 50 and in good health, consider buying a LTC policy on you or a rider on your life insurance policy.
• Name a guardian for our kids and ask me who I named. We might be able to agree still on that. Of course, I’ve taken care of my guardianship nomination, but if I didn’t, our kids would be subject to a guardianship proceeding and you and I both know that would be bad because our families would duke it out. You can even do that for FREE online at www.kidsprotectionplan.com. With that resource, there’s really no reason not to do that at the very least.
• When you decide to remarry, get guidance from an attorney in advance because remarriage can cause complications to your planning. I’m sure you’ve heard of assets going to a spouse instead of to kids, and while you may eventually want that, don’t let that happen by accident or oversight.
• Make sure you have your own healthcare documents in place, naming your agent for medical decision-making. Don’t name the kids as your agents until they are legally capable, over 18, and emotionally able to handle the job.
• Check with your attorney and your retirement account custodian to see if I need to sign any waiver to your retirement accounts. In some cases, if you haven’t remarried, as your previous spouse, I may retain some rights in a 401(k) or similar account that you may have had when we were married. I know that’s not what you want and that’s okay.
• Most importantly, shoot a video of yourself telling the kids your life story. Tell them about how we met and what you liked about me. Tell them that it’s not their fault that we didn’t work out, but that we did have some awesome times together. Tell them about your biggest life lessons, your values, your setbacks, and your victories. Tell them what a terrific businessperson you are and how you learned to be that. Tell them about your favorite hobbies and what you’re good at. Tell them what you love about them and how blessed you are that we brought them into the world.

So, dear Ex, I do want the best for our kids and I hope you consider my wishes so that if something did happen to you, they’d be okay. I promise that if something did, I would do everything in my power to make sure they’re able to heal, to thrive, and to honor you every day of their lives.

With love,
Your Ex

Picking the Best Way to Hold Title to Your Home

 

 

 

One of the last things most home buyers think about is how to take title to their new house.

It's best to consult an estate attorney before deciding but, unfortunately, most homeowners don't do that.

To help with the decision, here are the pros and cons of the five most common ways to hold title to your home:

1. Sole ownership
If you are single, one way to hold title to your home is in your name alone. This method is also called ownership in severalty.

When a married person takes title to real property in his or her name alone in sole ownership, the spouse is usually asked to sign a quitclaim deed giving up any ownership interest in the property.

This might be done, for example, when a husband invests in properties but his wife is not involved with the realty investments.

There are no special tax or other advantages of holding title in sole ownership. When the sole owner dies, any property held this way is subject to probate court costs and delays.

2. Tenants in common
When two or more co-owners take title to real estate, especially if they are not married to each other, they often become tenants in common. For example, two realty investors might select this method.

Each tenant in common owns a specified interest in the property. It need not be equal. For example, one owner might own a 50% interest, another could own a 10% interest and a third tenant in common could own a 40% share. The percentage ownership is specified on the deed.

A major advantage is that each tenant in common can sell or pass his interest by his will to whomever he or she wishes.

For this reason, tenancy in common is especially popular in second marriages, so each spouse can will his or her share to the children from a first marriage. Tenancy in common property is subject to probate court costs and delays.

A disadvantage is that the remaining tenant in common could wind up co-owning property with a stranger.

Another disadvantage (also true for joint tenancy) is that a tenant in common can bring a partition lawsuit to force a property sale if the other co-owners are unwilling to sell. The court can then order the property sold, with the proceeds split among the co-owners according to their ownership shares.

3. Joint tenancy with right of survivorship
When title is held in joint tenancy with right of survivorship, all co-owners must take title at the same time; they own equal shares and the surviving co-owner winds up owning the entire property. In some states, when husband and wife use this method, it is called tenancy by the entireties.

After a joint tenant dies, the surviving joint tenant(s) receives the deceased's share. The deceased's will has no effect on joint tenancy property.

A major advantage is that probate costs and delays are avoided when a joint tenant dies. The surviving joint tenant(s) usually needs only record an affidavit of survivorship and a certified copy of the death certificate to clear the title.

However, except for tenancy by the entireties, a major disadvantage is that a joint tenant can sell or give his property interest to a new owner without permission of the other joint tenant(s).

If there are only two joint tenants, the joint tenancy is ended by such a conveyance, creating a tenancy in common.

4. Community property
Husbands and wives who acquire realty in the community property states of California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico can take title as community property. Each spouse then owns half the property, which can be passed by the spouse's will either to the surviving spouse or someone else.

A special advantage is that community property assets willed to a surviving spouse receive a new stepped-up basis at market value on the date of death. In 1987, the IRS extended this community property stepped-up basis advantage to husbands and wives holding joint tenancy titles in community property states.

To qualify, IRS Revenue Ruling 87-98 requires spouses to acknowledge in writing to each other that their joint tenancy property is also community property.

5. Living trust
Probably the best way to hold title to homes and other real property is in a revocable living trust. There are many advantages, such as avoidance of probate costs and delays.

Other than the modest cost of creating a living trust (usually less than $1,000) and deeding real property into the living trust, there are no disadvantages.

Until the death or disability of the trust creator, the home and other real estate in the living trust are treated normally.

Stocks, bonds, bank accounts, automobiles and other major assets can also be held in a living trust. Since the living trust is revocable, these assets can be bought, sold and financed normally.

If the trustor becomes incompetent, the named alternate trustor (such as a spouse or adult child) takes over management of the trust assets. When the trustor dies, the assets are distributed according to the trust's terms.

Privacy is a major advantage. Unlike a will, which becomes part of the public probate file, the living trust terms remain private. For example, late Bing Crosby held virtually all his assets in a living trust and its terms never became public.

Still another advantage is that court challenges of living trusts are virtually impossible, whereas will challenges by disappointed relatives occur frequently.

Summary
The five most popular methods of holding residence titles all have their pros and cons. Overall, the best method for most homeowners is the living trust, because of all its advantages.

 

 

This article was written by Robert J. Bruss and published in the LA Times on 1/9/2013

Asset Protection Considerations for Business Owners

Many business owners devote much time and energy “working in” their business to improve business operations and profitability; however, they often neglect to “work on” their business by not addressing certain asset protection issues. Business owners, particularly those owning their business in corporate form, should consider the following: 1) how to own C corporation or S corporation stock to minimize exposure to creditors, an “outside” asset protection issue; and, 2) whether to implement several basic business agreements designed to protect and even enhance business value from the “inside” of the corporation.

Stock Ownership

Generally, a creditor of a corporate shareholder may seize the shareholder’s stock and thus have the same management and liquidation rights as the debtor shareholder. Charging order protection (described below), normally applicable to limited liability entities, does not apply to S corporations or C corporations. S corporation owners may have additional concerns if a creditor is an ineligible S corporation shareholder thereby causing the corporation to lose its S election. As a result the corporation will be treated as a C corporation and exposed to double taxation.

A business owner who owns S corporation or C corporation stock should consider the asset protection benefits of converting or merging the corporation to a new Limited Liability Company (“LLC”). There are several limited liability organizations that can protect business assets from the personal liabilities of the owner. However, entities such as limited partnerships, or limited liability limited partnerships, are treated as partnerships for federal tax purposes and therefore cannot own S corporation stock; whereas, an LLC electing to be taxed as a corporation may.

Generally, the asset protection benefit of an LLC is a judicial remedy as known as a “charging order” which protects the owner’s interest in the LLC from his or her personal liabilities. If a creditor obtains a charging order, the creditor is limited to the rights of an assignee of a membership interest in the LLC. If a distribution is made from the LLC, the creditor is entitled to receive a proportionate distribution. However, the creditor has no voting rights and thus, cannot force a distribution, liquidate the LLC, or otherwise manage the business.

With proper planning, both C corporation and S corporation owners may be able to avail themselves of the LLC asset protection benefits by converting the corporation to an LLC taxed as a corporation. Generally, such conversions are treated as nontaxable “F” reorganizations under IRC Section 368(a)(1)(F). However, potential income tax consequences and individual state law considerations should be carefully evaluated. For instance, C corporations considering conversion should analyze potential exposure to the “built-in-gains tax” under IRC Section 1374. Also, the strength of the charging order protection provided by an LLC varies depending upon state law.

Business Agreements to Protect Value “Inside” the Business

Among the basic business agreements or legal documents that should be considered by business owners to protect business value include a Non-Compete and Confidentiality Agreement, Buy-Sell Agreement, and perhaps even a Deferred Compensation or Bonus Plan for key employees.

Few events can sap the value of a small business like a key employee or associate leaving the business and starting a similar enterprise, especially if such an employee departs with trade secrets, confidential information or even customer lists. Business owners should require their employees to sign Non-Compete and Confidentiality Agreements to prevent this from occurring. If the terms of such an agreement are considered reasonable under state law, the agreement should be enforceable.

A Buy-Sell Agreement is another key document that if properly structured, funded, and updated will protect the value of both the exiting and remaining business owner’s interest in the business. The Buy-Sell Agreement accompanied by proper planning should provide the exiting owner a fair value for his or her ownership interest and provide the remaining owner a means to purchase the exiting owner’s interest without depleting the business of cash flow and its value. A Buy-Sell Agreement is designed to establish a predetermined and agreed-upon business value (or method of arriving at the value) at the occurrence of certain trigger events such as the death, disability, voluntary or involuntary termination, or retirement of a shareholder or partner.

It is crucial that planning be done to ensure there are sufficient funds available to implement the buy-sell provisions when triggered. Funding at an owner’s death with life insurance may be the easy part. More problematic may be how to buy-out a departing owner’s interest in the event of disability, retirement or voluntary termination, especially if a portion of the business’ cash flow must be devoted to that purpose. Further, once in place a Buy-Sell Agreement should periodically be updated to reflect changes in the business value and the owners’ objectives.

Finally, business owners should consider putting into place a deferred compensation or bonus plan designed to reward key employees who meet certain performance targets. A properly planned deferred compensation or bonus arrangement can serve two purposes which will work toward protecting the value of the business. First, the plan should be designed so that employees are rewarded for achieving benchmarks that not only protect but increase the business value. Second, such agreements, for example through gradual vesting schedules, should place “golden handcuffs” on valuable employees by making it difficult for a key employee to leave the business and forfeit certain benefits.

A detailed discussion of the aforesaid legal documents is beyond the scope of this article. The point here is that when considering asset protection strategies for business owners, protecting the internal value of the business through a few important but often overlooked documents can be just as important as the legal wrapper placed on the ownership of the business. It should also be noted that implementing such agreements not only protects the value of the business but also enhances its value and makes the business a more attractive target to a potential buyer when the owner eventually exits.



Justin Peltier is an estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate, trust administration and business planning. Please view our website for more information at www.jpestateplanning.com or join our social media community below. You can also reach me directly at justin@jpestateplanning.com.

Yes, Time IS Running Out to Save Unprecedented Amounts in Taxes

For the rest of 2012, every American can transfer up to $5.12 million free of federal gift, estate, and generation-skipping transfer tax. In the estate planning community this is a big deal, and estate planners are doing everything they can to motivate you to act before year end so you can take advantage of this unprecedented opportunity.

To understand why it is such a big deal, we only have to look at recent history. From 1987 through 2001, the federal estate tax exemption—the amount of assets an individual can leave to others without having to pay estate taxes—increased from $600,000 to just $675,000. Then the Bush tax cuts went into effect, and the exemption increased from $1 million in 2002 to $3.5 million in 2009. When Congress failed to change the law, the estate tax was repealed in 2010, so there was no estate tax on estates of those who died that year.

Then, at the end of 2010, just before the exemption was scheduled to revert to $1 million in 2011, Congress and the President reached an unexpected agreement. The result: a $5 million exemption for 2011 and 2012 only that applies not just to estate taxes but also to lifetime gifts and the generation-skipping transfer tax. This is important because even under the original Bush tax cuts, when the highest estate tax exemption was $3.5 million, lifetime gifts were limited to $1 million. (The amount for 2012 was adjusted for inflation, so that is how we came to have a $5.12 million exemption.)

Now, here’s what this means to you—and why it really is important for you to plan this year.

• This law was only for 2011 and 2012. If Congress does not act to change the current law by the end of this year, the gift, estate and generation-skipping tax exemptions in 2013 will be just $1 million.
• Every American has a $5.12 million exemption in 2012, so a married couple can transfer up to $10.24 million out of their estates.
• You do not have to die in 2012 to use this exemption. You can use it to make gifts now, while you are living.
• You do not have to make the transfers in cash or liquid assets or completely give away your assets. You can transfer illiquid assets like your business, or your home or other real estate, to a trust. If you transfer your home, you can continue to live there and take the tax deductions. If you transfer your business, you can do it in a way so that you can keep control and receive the income. Future appreciation of these assets will not be subject to estate tax, and current depressed values will result in favorable valuations.
• You don’t have to use the full $5.12 million exemption to benefit. Those with $1 million to $5 million in assets can save substantial amounts. And those with less than $1 million should consider some planning to prevent future tax liability.
• There are proven estate planning techniques available now (discounting, family limited partnerships, grantor trusts, etc.) that may soon be eliminated as Congress looks for more ways to raise revenues. Coupled with the $5.12 million exemption and historic low interest rates, families can transfer significant assets at little or no tax.

No one knows what will happen with the law in the future, but it is likely that the gift tax exemption will fall significantly, probably to $1 million. This is true even if the estate tax exemption stays the same or falls to a lesser number, like $3.5 million.

Bottom line, this really is a unique estate planning opportunity to transfer substantial assets tax-free, and it will very likely be gone on January 1, 2013. You owe it to yourself and your family to meet with your estate planning attorney as soon as possible to find out how much you can save by planning before the end of the year.

Estate Planning for Young Families

Many young families put off estate planning. If asked, they may say they are too young, healthy or can’t afford it. Some have trouble just thinking about what could happen if they should die while their minor children and spouse are depending on them. But even a healthy, young adult can be taken suddenly by an accident or illness, and those with young families need estate planning precisely because others are depending on them.

Of course, you are not expecting to die while your family is young, but planning for the possibility is being prudent and responsible, and it shows your family how much you care.

A good estate plan for a young family will include naming someone to administer the estate (a trustee or executor), naming a guardian to care for minor children, providing instructions for the distribution of your assets, and naming someone to manage the inheritance for the children until they become adults. It will also include reviewing your insurance needs and planning for disability.

Naming an Executor or Trustee for Your Estate
This person will be responsible for handling your final financial affairs—locating and valuing assets, locating and paying bills, distributing assets, hiring an attorney and other advisors—so it should be someone who is trustworthy, willing, able, knows you and will carry out your wishes.

Naming a Guardian for Minor Children
If something happens to one parent, the other parent will continue to raise the children (unless he or she is physically or emotionally unable to do so). But who will raise them if something happens to both of you? This is often a difficult decision for parents, but it is very important because if you have not named a guardian, the court will have to appoint someone without knowing your wishes, your children or your family members.

Providing Instructions for Distribution of Your Assets
Most married couples want their assets to go to the surviving spouse if one of them dies. If both parents die and the children are young, they want their assets to be used to care for their children. Some assets will transfer automatically to the surviving spouse by beneficiary designations and how title is held. However, an estate plan is still needed in the event this spouse becomes disabled or dies, so that the assets can be used to provide for the children.

Naming Someone to Manage Your Children’s Inheritance
Unless you include this in your estate planning, the court will appoint someone to oversee your children’s inheritance. This will likely be a friend of the judge and a stranger to your family. It will cost money, which will be paid from the inheritance. Also, the children will receive their inheritance (in equal shares) when they reach legal age, usually age 18. Most parents prefer that their children inherit when they are older and to keep the money in one “pot” so it can be used to care for the children’s different needs. Establishing a trust for your children’s inheritance lets you accomplish these goals and select someone you know and trust to manage it.

Reviewing Insurance Needs
Part of the estate planning process is to review the amount of life insurance on both parents. Income earned by one or both parents would need to be replaced; also, one or more people would probably be needed to take over the responsibilities of a stay-at-home parent. Additional coverage may be needed to provide for your children until they are grown; even more if you want to pay for college.

Planning for Disability
There is the possibility that one or both parents could become disabled due to injury, illness or even a random act of violence. This should be planned for, as well. Both parents need medical powers of attorney that give someone else legal authority to make health care decisions for you if you are unable to do so. You would probably name your spouse to do this, but one or two others should be named in case your spouse is also unable to act. HIPPA authorizations will give your doctors permission to discuss your medical situation with others (parents, siblings and close friends). Disability income insurance should also be considered because life insurance does not pay at disability.

Putting Your Plan in Place
Estate planning will require you to think about family relationships and some decisions may be difficult. But an experienced estate planning attorney will be able to help you through the process, provide valuable guidance and make sure your plan will do what you want when it is needed. If finances are tight, as they usually are for young families, start with the most essential legal documents and term life insurance, then update and upgrade your plan as your financial situation improves. The most important thing is to not put this off. Once your plan is in place, you will have peace of mind that your family will be protected if something should happen to you.

 

 

 

Justin Peltier is an estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate, trust administration and business planning. Please view our website for more information at www.jpestateplanning.com or join our social media community below. You can also reach me directly at justin@jpestateplanning.com or (978)319-6006.