ESTATES & TRUSTS

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

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For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents.  But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child attains the age of majority the court must distribute the entire inheritance in one lump sum.

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A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

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Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

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Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA).

 

These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

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A better option is to set up a children’s trust in your will and name someone to manage the inheritance instead of the court.

 

You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because a will cannot go into effect until after you die.

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Another option is a revocable living trust, the preferred option for many parents and grandparents.

 

The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

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Blended Families

 

Chances are, you or someone you know is part of a blended family. Once uncommon, fully 42 percent of adults now have some kind of step-relationship, according to Pew Research. That’s 95.5 million people.

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For the millions of divorced, widowed, and remarried Americans out there, estate planning is extra tricky. In a blended family situation, there are more opportunities to get it wrong, and the stakes—ensuring your assets are distributed to a current spouse and not an ex, or that your children and stepchildren are treated according to your wishes—are often higher.

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Additionally, spouses—current, former or both—may not see eye-to-eye on key decisions. Who takes care of the kids if one parent dies—the surviving spouse or the natural parent? Which assets belong to which spouse?

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Working through these details can not only avoid future estate planning hassles but also help maintain healthy relationships between all parties involved.

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To get started, work through these questions:​

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• What do you want to happen when you die?

• Who do you want to make decisions for you, if you can’t make them for yourself?

• Who will provide for your kids?

• Who will take over as guardian for any minors when you die—the surviving spouse or the natural parent? Do the kids get a say?

• What are you going to do for your surviving spouse?

• How do you want to provide for them?

• Do you want to give them broad decision-making authority or would you rather limit it?

• Do you and your present and/or former spouse have shared objectives?

• Will you need two separate attorneys to handle your plans?

• How open are you willing to be in the planning conversation with a past and/or present spouse and an attorney?

• Do you live in a separate or community property state? (In a community property state, both spouses are typically considered equal owners of all marital property. In a separate property state, if your name appears on an asset—say a home mortgage—you are considered the owner, though your spouse has the right to claim a fair and equitable portion of those assets.)

 

When you sit down to think about these matters, keep in mind any wealth or age disparities between yourself and any future or former spouses. If remarrying, do you need a prenuptial agreement? If there’s a big age difference, who’s more likely to die first?

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Once you’ve decided what you’d like to see happen, it’s important to work with a professional to formalize and structure your plans. Free online services are not sophisticated enough to deal with the complexities of blended family estate planning, Additionally, it’s important to work with a professional who specializes in estate planning and has worked with blended families before.

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A good, foundational estate plan can be costly, but it’s a bargain when you consider the benefits. Planning not only gives you peace of mind about what will happen to your assets when you’re gone but also allows you to preserve the peace with loved ones now.