ESTATE PLANNING FOR YOUNG FAMILIES
It’s not something you can afford to put off until tomorrow.
For many young families, estate planning often gets put on the back burner. Couples with young children are busy making many important life decisions in those early years, such as continuing their education, finding jobs, paying off debt, buying homes, saving and investing money, and helping parents and grandparents. We often find that people mistakenly believe that an estate plan is only necessary when planning for retirement, or only for those with a large amount of assets. However, there are many reasons for couples with young children to develop their estate plan. Estate planning for young families generally includes a Trust, Will, Power of Attorney, and Designation of Patient Advocate. While no one is expecting to pass away while their family is young, unfortunately, even a healthy, young adult can be taken suddenly by an accident or illness. Planning for such a possibility is not only responsible, but it shows your family how much you care that they are protected in the event of a tragedy. The following are some of the most important questions parents with young children should be asking themselves when developing their estate plan:
Who do you want to raise your children if you are gone?
Naming a guardian in the estate plan provides the best evidence of who the parents would like to make decisions for their children should the unthinkable happen. A court will usually honor the wishes of the parent when determining who will become the children’s legal guardian(s) for both the long and short term. When deciding on a guardian, parents should consider the proximity of the guardian’s residence to the children’s current home, the lifestyle and religious beliefs of the guardian, and the financial situation of the guardian. As part of the process of Estate Planning for Young Families, Parents should each name the same guardian in their estate plan to avoid any confusion in the event that both parents die simultaneously. Assuming guardianship of minor children is a major responsibility and parents should talk to their preferred guardian ahead of time to ensure they would be willing to care for the children in the event of a tragedy.
How will the estate assets be transferred to your children while they are minors?
If the parents have no estate plan in place upon the death of both parents, the children would inherit their share of the parents’ estate. The inheritance would be held by a conservator for each child and would be under the supervision of the probate court. The children could have access to the monies by requesting a distribution from the conservator, who may need court approval before making an expenditure from the estate. Additionally, once a child reached the age of majority, which is 18, all assets in the Conservatorship would be distributed directly to the child, regardless of the child’s ability to manage the money.
If parents have an estate plan, they may create a Discretionary Trust to hold assets that will pass to their children. The parents, via their Trust or Will, create a Discretionary Trust and name a Trustee (such as a relative or trusted friend) to manage, invest, and distribute the assets to the minor children, according to the terms of the Trust. The Trust may allow distributions for the children’s health, education, maintenance, and support throughout their lives. Unlike a Conservatorship, the Trust does not automatically end when a child reaches the age of majority. Instead, you decide at which age the Trust will terminate and when your child will receive the remainder of their inheritance. For example, you may choose to end the Discretionary Trust when the child turns 25 or 30. Alternatively, you may choose that the Trust distribute principal in increments based on the age of the child. For example, the child would be entitled to demand one-third (1/3) of the Trust principal at age 25, another one-third (1/3) at age 30, and the final one-third (1/3) at age 35. When creating these type of Trusts, you have the flexibility to manage the inheritance in a way that best suits your family.
Parents of a child with special needs should create a Third-Party Special Needs Trust to hold assets for the child with special needs. This Special Needs Trust is typically funded with the inheritance of the child with special needs, and under current Michigan law, does not have to payback the State for medical assistance provided to the child. This will ensure that your child with special needs will not be disqualified from essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. However, as public benefits only provide for the bare necessities such as food, housing, and clothing, the Third-Party Special Needs Trust will be able to provide your child with the funds necessary to enjoy a better quality of life.
What if I become incapacitated?
Estate planning for young families should also include Power of Attorney and Designation of Patient Advocate documents in the event you become incapacitated. These documents will allow you to name someone, usually your spouse, to make your financial and medical decisions in the event you are unable to do so yourself. Many married couples mistakenly believe that they can legally make financial and medical decisions for each other simply because they are married. However, this is untrue and only a Power of Attorney or Designation of Patient Advocate will give your spouse the legal authority to make these decisions on your behalf.
Of course, these are only a few of the things couples with young families should consider when establishing an estate plan. The most important thing is to not put your estate planning on the back burner. Our experienced attorneys at SSR Law Office, who also have their own young families, will help guide you through the process to make sure your family is protected in the event of a tragedy.