Ronnie's Awesome List presents a guest article by Nadine Aarsheim, Aarsheim Law – Estate Planning for Families in Corte Madera.
One of the most common questions I am asked in my estate planning practice by parents with young children is, “Do I need an estate plan? What is estate planning, anyway?” “Estate planning” sounds like something rich, elderly folks do. It sounds a little too serious and heavy for a young family with modest assets. But instead of giving you a long winded lecture about why I think parents should do estate planning, I thought instead that I’d take this opportunity to tell you what your fellow parents who become my clients tell me are their principal goals.
1. Parents want to have a say in who will care for their kids if something should happen to them.
Most of my clients are eager to nominate a guardian to care for their children if they become unable to do so. If a child’s parents become unable to continue caring for him or her, someone may petition the probate court to be appointed as the child’s guardian. Parents can elect to have a say in who that guardian is by expressing their wishes through a written document, usually in a will. The probate court will generally follow the parents’ wishes, assuming that the nominated individual is the same person who files the petition, and the court deems that person fit to care for the child. If the parents do not nominate a guardian through a written document a guardian will nevertheless be appointed. The question is if the parent wants a say in who that person is or not. It’s a gift to your family to make clear to them what your wishes are in this regard; it is not conducive to family harmony to have in-laws fighting each other to become guardian, each convinced that you would have chosen them if you had expressed a preference. Or, on the opposite side of the coin, if it isn’t obvious who would be willing to step up and care for your child, proposing the idea to a friend or relative while you’re alive and well is usually preferable to having it sprung upon them under stressful circumstances after something has happened to you.
2. Parents don’t want their kids to be handed a large sum of cash at an early age.
Without an estate plan, any assets you leave behind if you and your spouse pass away unexpectedly would be given outright to your children when they turn 18. With court intervention, that date could be delayed until your child turns 25. Most of my clients do not want even moderate sums of cash handed to their kids at either of those ages. Instead, my clients want a trusted adult to manage money they leave for the benefit of their kids until such time as their children have the maturity to responsibly manage the money themselves. I help my clients achieve this by creating trusts for kids that would spring into existence if both parents passed away. The terms of these trusts for kids are unique to each client as they are written to reflect my clients’ values around helping young adults financially, which vary dramatically from client to client. In addition, basing the timing of gifts to children based on a certain date (the date of your death, or the child reaching a certain age, for example) puts those funds at risk of being lost to the child’s creditors, or being handed to a child who is not capable of handling the money (a child with a substance abuse issue, for instance). Leaving funds for kids with a trustee who can use his or her discretion to time distributions to maximize the benefit to the beneficiaries ensures that those beneficiaries are helped, and not harmed.
3. Parents don’t want to leave an administrative mess for family members.
Whether you create an estate plan or not, when you pass away someone will need to facilitate the transfer of your assets to whomever they are supposed to go to. This is called estate administration or trust administration. If you are incapacitated, someone will need to step in and assume the responsibilities you take care of day to day. Depending on how organized you keep your records and whether or not you’ve left instructions for whomever will need to step in and take care of things, these administrative tasks can be relatively straightforward and easy to accomplish, or, frankly, a total nightmare. Part of our estate planning goals always involves choosing people as our agents who are well suited for the task, and leaving them with the tools they will need to take care of things as quickly and easily as possible.
4. Parents want to make sure that their assets end up with their kids, and not with their spouse’s new husband/wife.
Let’s face it; your spouse is a good catch. If something should happen to you unexpectedly, s/he will probably get remarried at some point. If you do not have an estate plan and the majority (or all) of your assets pass to your spouse, your spouse would then be free to create a new estate plan leaving those assets to whomever they wish when they pass away. That new estate plan may very well provide that all of their assets (some of which were formerly yours) will pass to their new, surviving spouse. Or, a new spouse may spend or gift to others (such as their own kids) assets that you intended to end up with your kids. When clients want to make sure that their assets pass to their children at the death of their surviving spouse, we often create a trust to hold the deceased spouse’s assets during the life of the surviving spouse. These trusts provide that the surviving spouse can manage the trust assets as trustee, and also take distributions from the trust for their own support if needed. But the remainder beneficiaries who succeed to the assets on the death of the surviving spouse are the children of the deceased spouse, and that cannot be changed. In this way clients can make sure their surviving spouse has access to funds if needed, but if not needed those funds are held for the couple’s children.
Are there other reasons my clients create estate plans? Yes! Probate avoidance, providing for other beneficiaries who cannot receive cash gifts outright for various reasons, tax planning, and business succession planning are high on the list of other goals clients often want to accomplish through their estate plans. But for parents, the “Big Four” I’ve listed above are often the driving objectives.
If you have questions about the “whys” and “hows” of estate planning, please do not hesitate to contact me.
Nadine Aarsheim is focused exclusively on assisting families and individuals with their estate planning, probate, and trust administration needs. Connect with her on website at aarsheimlaw.com