Legal Checklist for Parents
It’s that time of year again. Vacation time is over and the kids are going back to school. You’ve done all sorts of things to prepare them for their first day and fought the traffic to get them there on time. The little ones walk away with lunchbox in hand, barely realizing they are entirely dependent on you for everything they have, and the big ones are off to college facing the realities of life. You worry about them a lot. However, if you haven’t planned ahead, they should probably be just as worried about you…
What if something happened to you or your partner that took you out of your child’s life? Who will they count on to steer them in the right direction? What resources will be available to cover their expenses? Who will protect and manage those resources for their benefit? A good estate plan answers these questions and many more by taking into account both the legal and financial factors that will help determine whether or not your wishes for your children are actually carried out. Here are just a few major issues that you will want to make sure are addressed in your legal plan.
Avoiding the “Default” Inheritance Rules
A Last Will & Testament is perhaps the most obvious estate planning device, but its importance is best understood when you realize what happens without one. Each state has a set of “default” rules that determine who gets what when someone dies without a will. These rules also give certain people rights that trump your will even if you do have one. For example, if your children are already adults, your current spouse might automatically inherit everything. Even if they are still minors, your current spouse will automatically inherit 50% and in some cases up to 100%. Whatever your spouse automatically inherits will be instantly exposed to your spouse’s creditors, mistakes in judgment during a very emotional transition, someone else making a claim to those assets upon your spouse’s remarriage and your in-laws inheritance claims upon your spouse’s death. Joint ownership can even further reduce your children’s claim to the asset. Children also inherit in equal shares by default, regardless of whatever special needs or other resources they may have. Everyone feels differently about all these issues. Without thinking through the possible scenarios and preparing a valid and detailed will, like it or not, these default rules define your children’s inheritance rights, if any.
Determining Who Manages Your Child’s Inheritance
Various aspects of what you might want for your children simply cannot be accomplished by using even the most sophisticated will. For example, you may not want your children to endure the expensive, public and potentially litigated courtroom process known as “probate” before they are able to receive their inheritance. Many parents also think it is wise that their children not be given unconditional access to their entire inheritance on their 18th birthday. Avoiding these problems requires a properly drafted and funded Living Trust to be set up before anything happens to you. A Trust is especially important if your child’s other parent would not be the best person to manage their inheritance, as well as to keep the funds away from whoever might wind up becoming their legal guardian if neither parent can take care of them.
Providing Economic Resources and Creating Liquidity
If you or your spouse’s last paycheck became the last paycheck, what kind of lifestyle will your kids have growing up? If your wealth is heavily allocated to real estate or a business, will there be a rush to sell those assets to cover your children’s expenses? Thankfully, you can actually estimate, project and calculate the answers to these questions with the assistance of a good financial advisor. If those answers come as a reality check, the right amount of life insurance protected by a properly drafted Living Trust can make a big difference in the opportunities your kids will have if they had to grow up without you. If you don’t currently meet with a financial advisor to measure how long your family can maintain their current lifestyle without you, let us help you find one.
Preparing for a Situation Where You Need Your Own Care
For high-income working parents, an untimely death may not actually be the worst economic catastrophe that could happen to your family. Unfortunately, we are actually 5 times more likely to become incapacitated than to die before our time. Good medical insurance should cover the expenses associated with your illness or injury, but only disability insurance can replace your income. Even worse, your family may have to make tough decisions about what amount to spend on your care versus providing your children with the opportunities they expected to have before you had to stop working.
Influencing Who Gets Custody of Your Children
The truth is that no legal document you sign will automatically determine who gets custody of your children should you and their other parent not be able to take care of them. That decision will always be made by a judge according to who they think is in your child’s “best interests” after reviewing all the evidence, interviewing the candidates and hearing the opinions of social workers and other family members. You can however prepare a Pre-Need Guardianship Declaration to make clear who you would want that guardian to be. If the Declaration meets all the legal requirements, the judge must presume that appointing the person you chose would serve your child’s best interests, thereby forcing anyone who disagrees to prove otherwise.
Proper planning for the inevitability of death and the possibility of incapacity involves simultaneous analysis of multiple, complex legal and tax issues. We can design a plan that details how your assets are to be managed and to whom and under what conditions they are distributed after you and/or your spouse passes away, while eliminating or reducing any estate taxes to the legal minimum. A complete plan also addresses decisions regarding your health, your property and the care of those who depend on you, during any period of your temporary or permanent incapacity.
Arista Law helps American and multinational families reduce their tax burden, protect their businesses and assets from legal risks, and plan for the eventual transfer of their wealth. Contact us to discuss how we might be able to help.