It is the start of a new year, and the talk is all about resolutions and planning: getting healthy, planning a trip, and maybe even a new hobby. It is also a great time to make sure you have an up-to-date, well-written and thought through estate plan for your family. In fact, an estate plan might be one of the best gifts we can give our children – it allows us to plan for our children’s financial security, and it allows us (instead of a court) decide who will love and care for them.
“A new year is a perfect opportunity for families to plan for the security and well being for their loved ones,” says Elaine McGinnis, an estate planning attorney at the law firm Wetherington Hamilton. According to McGinnis, estate planning is vital, especially if you fall into one of the following categories: families with minor children; blended families/second marriages; families with special needs beneficiaries; families with charitable or non-relative beneficiaries; and families with large estates.
“Whether you own a large estate requiring complex tax planning or simply want to ensure that your family wedding ring is given to your only daughter, estate planning documents provide the opportunity for you decide what happens to your assets,” says McGinnis.
You may be looking around your three-bedroom ranch and wondering what estate she’s talking about, but consider this: In Florida, if you die with your assets in your name alone and no will or trust, Florida law gets to decide how they are distributed. Even more importantly, deciding who takes care of our children could be the most crucial decision we make for them while we’re still able. “No one will parent your children as you do, but it is much better for you to name a family member or friend to love and care for your children instead of leaving that decision to a judge,” says McGinnis.
Also important to decide: when the kids get your money. “A child becomes an adult at age 18 according to the law, but most parents hesitate at the thought of their 18 year old inheriting a home, life insurance proceeds, a savings account, retirement, or any other valuable item,” says McGinnis. A more palatable option (especially to anyone with a teenager in the house) might be a revocable living trust or testamentary trust, which allows you to appoint a trustee or co-trustees to hold and manage the funds, and provides flexibility in determining distribution. For example, you can state that the funds are to be held in trust with 25 percent to be given to the child when she turns 25; a third when she turns 30 and the balance at 35. The trustee you designate gets to distribute the income and make sure your kids’ health, education and shelter is covered without squandering their inheritance.
The guardian doesn’t have to be the same person as the trustee; in fact, some people have separate people caring for their child and their child’s money to ensure checks and balances for the trust estate. Others prefer to nominate the same person in both roles to minimize delay in administration. In either case, thought should be given to whether the trustee and guardian will be able to work together and who is best suited for those roles, says McGinnis. It is also common for parents to change the nominated guardian over time. “Grandma in Georgia may be perfect for your sweet baby at 10 months old, but now that your baby is 12 and loves her school and friends, and grandma is in her 70s and suffering from several health issues, choosing someone closer to home and in better health may provide more consistency for your child if you are gone,” says McGinnis.
Estate planning is also important as we start to think about caring for our parents as they age, too. For instance, do you have a power of attorney for your parents so that you could pay bills, write checks, contact insurance agencies, and generally act in the shoes of parent who is unable to act for himself? “It is a common misconception that a spouse or adult child can simply assume this role,” says McGinnis. “Unfortunately, if one suffers from mental incapacity, and does not have a properly executed durable power of attorney and nominated health care surrogate, a legal guardianship may be necessary. A legal guardianship is an expensive and time-consuming court procedure, which can usually be avoided with proper planning.”
And actually, putting together an estate plan brings a great sense of relief. Says McGinnis: “My clients often feel a sense of relief after they sign all of their documents. They know they have a solid plan to protect and provide for their family.”
What’s an estate plan anyway?
A very basic estate plan typically includes the following:
Last Will and Testament
Durable Power of Attorney
Advanced Directive for Health Care
Nomination of Preneed Guardian and/or
Nomination of Guardian of a Minor
Often, a Revocable Living Trust, and accompanying documents such as a Certificate of Trust, Assignment to Trust, and Deed(s) to Trust.