One of the most costly and common mistakes I witness from my first time clients is naming their minor children as direct beneficiaries under their life insurance and retirement plans.
Minor children (under the age of 18) cannot legally inherit property in the eyes of the law. If you die and leave property directly to your minor children, the guardians of your children will not be able to use the property without first initiating legal proceedings with the court to establish what is known as a conservatorship.
A conservatorship is an arrangement where the court designates a person or corporation to manage the devised property for your minor child’s benefit until the child reaches the age of 18. All conservatorships are subject to court oversight and strict reporting requirements. The legal fees involved in setting up and maintaining a conservatorship can easily extend into the thousands of dollars and those fees will come out of the property that you intended to leave to your child. The good news is that with some simple planning a conservatorship can be easily avoided using the following methods:
With the passage of the American Taxpayer Relief Act of 2012 (“ATRA”) estate tax planning has fundamentally changed for the vast majority of my clients. Thanks to ALTRA, with only a modicum of tax planning, married couples can transfer up to $10.98 million (as of 2017) worth of property upon death without triggering federal wealth transfer taxes. Therefore, most married copies are free to transfer their property to their spouse based on personal preference (and income tax considerations) rather than the avoidance of estate taxes. For the vast majority of couples there are basically two choices for passing the assets to the surviving spouse: (1) by outright gift so that the surviving spouse owns the property free and clear or (2) leaving the property in a trust for the benefit of the surviving spouse. Each has there pros and cons as discussed below.
The one estate-planning document that every expecting or new parent MUST HAVE is a Last Will & Testament and it may not be for the reason you are thinking...
Wills are most commonly known as devices for distributing your property to family and friends when you die but they also serve another vital purpose and that is appointing a legal guardian for your minor children. In fact, in just about every state the ONLY WAY to appoint a guardian for your minor children is through a Last Will and Testament. A trust or any other estate-planning document simply does not work for this singular purpose.
John Thompson is a shareholder with Kennedy Berkley Yarnevich & Williamson, Chartered assisting entrepreneurs, families and farmers in the areas of estate and business planning.