Smart Estate Planning
For Parents with Young Children
By Shannon P. McNulty, Esq.
If you are the parent of young children, your most important responsibility is
providing for their safety and well-being. Equally important is making sure
that they are taken care of if the unthinkable happens and you're no longer
around to care for them yourself. Yet, many parents fail to plan for this
possibility. Those parents who do often believe that a simple will is
sufficient to address their concerns. Below are some steps you can take to
ensure that your children would be taken care of and that your assets
wouldn’t be wasted on taxes or burdensome court procedures.
Execute a will that includes a guardianship nomination. If you nominate
a guardian for your children in your will, the court will most likely honor
your wishes and appoint the person you believe would provide the best care
and guidance for your children. If you fail to name a guardian, a court could
appoint someone and you would have no say in who would be raising your
kids. Moreover, a messy court battle could take place if more than one
person wished to serve.
In a separate document or power of attorney, designate a guardian to
care for your children in the event of your incapacity. A will governs
your choice of guardian if you were to die; however, it would have no effect
if you were unable to care for your children because you were in the hospital
in an unconscious state. For this reason, it is necessary to designate a
guardian for this purpose as well. It may be the same person you nominate
in your will, or you may want to choose someone who is closer to where you
live.
Ensure that you leave sufficient financial resources to raise your
children. A guardian would be appointed to raise your child, but you should
consider the financial impact of that responsibility. Most people don’t have
the financial resources to unexpectedly add a child to their household.
Providing sufficient funds for your children’s care will make that adjustment
www.mcnultylawoffices.com
Tel. (570) 733-3113
easier. Unless you have substantial assets, life insurance is generally the
best way to ensure that adequate funds would be available.
Leave your assets in a trust instead of outright. Many parents believe
that a simple will suffices to take care of their estate planning needs.
However, few understand the consequences of simply leaving their assets
equally to their children in a will. Minors lack the legal capacity to own
property or enter into contracts, so assets left to a child are subject to court
supervision until the child turns 18. Such supervision can be costly and
often imposes an unnecessary burden on the guardian, who must make
regular accountings to a judge. Furthermore, when the child turns 18, he or
she has unfettered access to the funds in the account, even though an 18year-old seldom possesses the financial maturity to handle substantial sums
of money.
By leaving your assets in a trust for the benefit of all your children, you
avoid involvement of the court and provide more flexibility for the guardian,
who can allocate the money equitably – which is not always the same thing
as equally. Suppose one child was in an accident and incurred substantial
medical bills. If your assets were left equally to your children in a will, the
guardian could not use one child’s share of the assets to pay for another
child’s medical expenses. In another example, suppose one child was
finishing college and another was still in high school. Dividing your assets
equally between the children might leave the guardian with insufficient
funds to raise the younger child and pay for his or her education. A trust
allows a trustee of your choosing to distribute the trust funds equitably in
order to meet the differing needs of all your children. The trust also serves
as protection from your child’s creditors and allows the trustee to retain
control over the funds until a date specified by you – not simply when your
child turns 18.
Protect against estate taxes. If everything you own, plus your life
insurance benefit, exceeds $3 million ($6 million per couple),* you might
consider placing the life insurance policy into a trust during your lifetime to
ensure that the proceeds would not be subject to estate taxes. An irrevocable
life insurance trust is often the best way for parents to protect against federal
*
If you live in New York State, such a trust may be appropriate for individuals with
assets of more than $1 million and married couples with assets of more than $2 million in
order to avoid estate tax at the state level.
estate taxes without relinquishing access to their assets, which they might
need for retirement.
Draft a letter with instructions for your guardian about how you would
like your children to be raised. After you’ve decided on a guardian, you
may want to draft a letter of instructions about how you’d like your children
to be raised. While such a document is not legally binding, it can help the
guardian to understand the things that are important to you and to raise your
children in accordance with your wishes. For example, the letter might
address what kind of school you would want them to attend, what type of
religious upbringing you’d like them to have, what values you’d want
instilled in them. All of these things can make a critical difference in a
children's upbringing, and it may help the guardian to make decisions
regarding your children’s care. A letter of instruction is also a good
opportunity to make sure the guardian is aware of any particular emotional
or health issues your children might have and information about medications,
and physicians.
While we can’t make ourselves immune from misfortune or illness, a good
plan can help prevent a tragic situation from becoming even more distressing
and burdensome for those we love. Taking the steps outlined above will
give you the piece of mind of knowing you’ve done everything you can to
protect your children and ensure they’re taken care of if you’re not able to
take care of them yourself.