The Importance of Estate Planning for Parents with Young Children…

QUICK FACTS:

·       Estate planning allows parents to plan for the care of their children, to ensure that their property will be transferred to the desired individual(s), to determine who will handle the business affairs of their estate, and to determine who will handle the property left to the child(ren).

·       The time to start estate planning is now!

·       Legal help is necessary to adequately plan your estate.

·       Changes to your family’s estate plan will be necessary as your family changes, your children grow up, and the size of your estate increases.

Why is Estate Planning important?

Suppose a couple has a house with a mortgage, a life insurance policy, and two minor children. Do they need an estate plan? Yes, they absolutely do!

All too often parents with young children neglect or postpone estate planning because they think they are too young to need one, they are in good health so it is not necessary, or they cannot afford the expense. Another reason may be that estate planning deals with feelings and attitudes that people often prefer to ignore. Naturally, estate planning can provoke a mix of feelings about death, property, marriage, and family relationships. These feelings must be explored so that the estate plan accurately reflects the parents’ desires and needs.

Feelings and Attitudes.

Planning your estate assures that certain things will happen upon your death. Planning is often ignored because of one’s fear of death. This fear may be caused by worry about who will care for one’s dependents. It may also come from knowledge that one’s personal plans and projects will eventually come to an end. While one might not think so, estate planning can often reduce such fears and help to put you at ease about the future.

Some parents permanently postpone writing a will because they cannot decide who to name as guardians of their children. In their indecision, they leave the court with no guidance and their children with the possibility of inappropriate guardians. It is far better to name a first and second choice for guardians now and to change the designation later if a better choice evolves, than to postpone this decision indefinitely.

Parents need to be realistic about their financial resources. For example, when discussing the care of their children, parents often say that they want their estate used for college education without thinking about how the children will be supported until they are of college age or whether their children will be college-bound at all. Parents should first think in terms of support. Children must be fed, clothed, and sheltered long before they are ready to enroll in college.

Additionally, parents need to question themselves about their goals and feelings concerning marriage and family relationships. How should family property be owned? Is each parent equally able to plan for and support the children? How does each parent feel about the possible remarriage of the surviving parent? How should the children be raised if both parents were to die?

Planning.

For parents of young children, the primary objectives of estate planning are to:

·       Determine who will care of their children;

·       Ensure that their property will be transferred to the desired individuals;

·       Determine who will handle the business affairs of the estate; and

·       Determine who will handle the children’s property until they reach a certain age.

Who will care for your children?

Perhaps the most important benefit of having a will is that it allows parents to determine who will provide for the care of their children if neither parent survives. If there is no will nominating a guardian, the court must appoint one, even though a judge cannot possibly know the values, lifestyle and child-rearing philosophy of the parents. The court must make a decision based on state law and the best interests of the children. It is often difficult for a court to accurately determine the children’s best interest after a brief court hearing.

If one parent becomes deceased, the other parent remains the natural guardian of the children. Similarly, when parents are divorced and one parent becomes deceased, the children generally go to live with the other parent. It is important for divorced and single parents to have a will or designation of guardianship for their minor children.

When nominating a guardian, give careful consideration to the individual’s lifestyle and values. Consider the physical ability of the possible guardian to raise the children. A small child may be too much for a grandparent. The person being nominated might divorce and remarry and/or move to another part of the country. Under what conditions would this person be acceptable as a guardian? Also, all parents should indicate and alternate choice in case the first choice nominee is unable to accept the responsibility of serving as guardian. Most importantly, parents should discuss their plans with the person being nominated.

Massachusetts law allows parents to make a designation of guardianship for their minor children outside of a will. Parents may write the designation on a separate document which states clearly their intention to name an individual or individuals as guardian(s) of their children if the parents become deceased or incapacitated and cannot make decisions for their children. This document requires two witnesses. Furthermore, this designation is only temporary. Pursuant to Massachusetts Uniform Probate Code, for this designation to become permanent, the guardian(s) must seek court confirmation.

Who will receive your property?

For married couples with minor children, most spouses want the surviving spouse to receive their property at death. They usually want the children to receive their property only in the event that both spouses die. Single parents of young children usually want their property to go to the benefit of their children.

Who will receive the property if one parent dies? Who will receive the property if both parents die at the same time, or if a single parent dies?

Some property is transferred automatically, or by operation of law, at death to the person with survivorship rights. This property, called non-probate property, includes most life insurance policies and assets transferred by beneficiary designation (such as retirement plans), and property owned as tenancy by the entirety or as joint tenancy with the right of survivorship. Even if all property is non-probate property, a couple still needs wills in place to transfer the property in case the person with survivorship rights does not survive and to provide for the care of any children.

Probate property (property with no survivorship rights) is transferred according to the decedent’s will, or, if there is no will, in accordance with the intestacy laws of your state. Laws vary from state to state. Massachusetts intestacy law directs that the property go to the surviving spouse if all of the children are joint children of both the husband and wife. If all the children are not mutual children, the property will be divided between the surviving spouse and the children. The proportion is determined by statute.

Division of property between the surviving spouse and the children may not always be desirable. The children’s share will be supervised by the court in a conservatorship proceeding until the children turn 21. With a will, the individual can indicate whether all property is to go to the surviving spouse, or can specify which portion should go to previous children, mutual children, and/or step-children. Under Massachusetts intestacy law, step-children do not receive a share of your estate.

If both parents die and have no will, intestacy laws direct that the property be distributed to the children in equal shares. This may sound desirable; however, the financial needs of children often differ. The cost of caring for children varies with age, medical needs, college choice and career choice. With an adequate estate plan in place, parents can, for example, instruct that all assets go into a trust fund to be used as they indicate, rather than automatically having assets divided equally. In the alternative, parents can instruct that individual trusts be created for each child, and all assets be divided equally among the trusts.

Who will handle the business affairs of the estate?

Another concern is the appointment of someone to handle the business affairs of the estate. In Massachusetts and in most states, this person is called a “personal representative.” In some states, the term “executor” is still used.

The personal representative’s duties consist of gathering the assets of the estate, notifying the creditors, paying the bills of the estate, distributing assets, and hiring an attorney and other necessary advisors. The personal representative should be someone who is honest and competent and who will carry out the individual’s wishes.

If a person dies without nominating a personal representative, the court must appoint one. In a will, a person can nominate a personal representative ensuring that the job will be done by someone who knows and cares about the desires of the deceased. This nomination also may save the estate time and money. Additionally, a will can expand or limit the powers of the personal representative, if so desired.

Who will handle the children’s property for them?

Parents need to develop financial plans for the care of the children. They should regularly review the status of their assets and their life insurance program. How much money will be available? Is this amount adequate or is additional coverage needed until the children are grown? Someone must handle the money that will be left to the children. This should be a person who will spend the money as you would under the same circumstances. Parents know best who this is.

If parents do not designate someone to handle the children’s assets in their wills, the court will have to make the appointment with no information from the parents. If the court appoints a conservator, that person will be supervised by the court and will have to seek court approval for major expenditures. The funds will be divided equally among the children, for administration by the conservator. The remaining assets will be distributed to each child when he or she turns 21 years of age.

Many parents would prefer that their assets be held in trust for their children until they are 25 years old or older. Often parents prefer to have a combined pool of assets for their children, instead of equal shares, until the time of final distribution. This can account for different needs of the children. These goals can be achieved through a testamentary trust, which is a trust that is built into a will, but not through a conservatorship supervised by the court.

Often, parents who have a testamentary trust have appropriate non-probate assets go directly into the trust if both parents become deceased. This is an effective and efficient approach. The proper designation of beneficiaries in a life insurance policy or on a retirement plan can transfer the assets first to the surviving spouse. If the surviving spouse does not survive, the second beneficiary can be the trustee of the testamentary trust, thereby sending the funds directly into the trust for the benefit of the children.

If a trust is not established to receive the life insurance proceeds, and if the life insurance beneficiary designations are not properly established to fund the trust, the court will be obliged to appoint a conservator to handle the children’s funds. Often, this is more cumbersome, more expensive, and less compliant with the parents’ wishes than a trust would be.

Plan Now!

The time to start estate planning is now. Make a list of all the property you own, how it is titled, its fair market value, and the amount of indebtedness against it. List life insurance policies and retirement plans, their owners and beneficiaries. Consider the present and future needs of your family. No effective plan can be made without this homework.

Regardless of how simple the situation may appear, legal help is necessary. People who do not have a regular attorney should talk to their friends. They may be able to suggest attorneys who they feel are trustworthy. You can also look for a lawyer referral service or check with your state or county bar association.

After you have located an attorney, call for an initial appointment. Be sure to ask if there is a fee for this initial appointment and ask how the fees are structured. Bring any appropriate information about the family’s needs and property. Do not be put off by “legal jargon.” Ask questions! Insist on understanding the plan and its implications. It is imperative that clients are comfortable with the structure of their estate plans.

Changes in life require changes to your estate plan.

For a young family, estate planning may be as simple as two reciprocal wills (known as “I love you” wills), with testamentary trusts. Whenever property, life insurance or retirement plans are acquired, it is important to consider estate planning in deciding how each asset should be titled and who should be named as beneficiary.

Keep careful records of all property acquired. Review your estate plan periodically to make sure is continues to meet the family’s needs. As a family changes, the children grow up, and the size of the estate increases, a family’s goals change. Revisions in estate planning will also be needed over time as circumstances change. Review your will periodically and consult an attorney when changes are needed.

For more information or for your free consultation, call Lamkin Law Group, LLP at (617) 512-1159, or visit our website at www.lamkinlawgroup.com.