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.
The benefits of trust utilization in estate planning are well espoused these days. In the right situations establishing a trust can assist in probate avoidance, tax planning and asset protection for beneficiaries. However, often missed in these discussions is the dramatic effect that trustee selection can have on one’s family following death.
In most cases, a parent’s natural inclination is to name a mature adult child as trustee rather than utilizing a disinterested non-family member. The rationale behind this decision tends to be two fold. First, the parent’s tendency to grossly under appreciate the family harmony risk in naming a child (or children) as trustee. Secondly, parents tend to grossly overestimate the benefits that may be achievable by having a family member serve as trustee.
A common misconception about estate planning is that it reserved only for the wealthy and senior class. The fact is, however, every adult has an estate in need of at least some minimal planning. In this article we explore the three main reasons why you need an estate plan and simple solutions you can take to sure up your estate.
1. If you have young children, you need a will. Period.
The only way to legally appoint caretakers for your children in through a Last Will and Testament. If something happens to you and your spouse and you don’t have a will in place then the state will appoint guardians on your behalf. Not only does this involve an expensive legal process, the court may decide not to appoint the persons you would have selected to care for your children. In addition to designating guardians a will allows you to specify how your assets will be distributed to your loved ones. Finally, a properly executed will also allows you to:
2. If something happens to you, who is going to take over your affairs?
Once you turn eighteen (18) the only way to designate agents to act on your behalf is by executing durable powers of attorney for your medical and financial affairs. If you are incapacitated, properly executed powers of attorney allow you to:
3. Probate and why you should avoid it.
Probate is the legal process used to validate your will, inventory your assets and settle your estate. It can be costly, lengthy and exposes details of your estate to public scrutiny. A typical probate process takes between 6 to 12 months and costs between 1% to 6% of the total value of your estate. By contrast, property transfers by other legal means, such as a living trust, can usually be accomplished in a matter of weeks. Fortunately, there are a number of alternative methods to pass assets while avoiding probate in its entirety:
The solutions discussed in this article are low cost steps you can take which produce a large benefit to you an your family. In terms of cost, we think not only of the professional fees involved but also the time, emotional stress and family harmony that can be affected by the death of a loved one.
If any of the following have happened to you, it may be time to discuss updating your plan:
John Thompson is a shareholder with Kennedy Berkley Yarnevich & Williamson, Chartered assisting entrepreneurs, families and farmers in the areas of estate and business planning.