If you are the parent of young children, your most important responsibility is providing for their safety and well-being. Equally important is making sure that they are taken care of if the unthinkable happens and you’re no longer around to care for them yourself. Yet, many parents fail to plan for this possibility or implement an inadequate estate plan. Below are some steps you can take to ensure that your children would be taken care of and that your assets wouldn’t be wasted on taxes or burdensome court procedures compiled by our Philadelphia estate lawyers.
Execute a will that includes a guardianship nomination.
If you nominate a guardian for your children in your will, the court will most likely honor your wishes and appoint the person you believe would provide the best care and guidance for your children. If you die without a will, or your will fails to name a guardian, a court would appoint someone, who may or may not be the person of your choice. In fact, it could be the very last person you would choose yourself! Moreover, a messy court battle could ensue if more than one person wished to serve as your children’s guardian.
In a separate document or power of attorney, designate a guardian to care for your children in the event of your incapacity.
A will governs your choice of guardian if you were to die; however, it would have no effect if you were unable to care for your children because you were in the hospital in an unconscious state. For this reason, it is necessary to designate a guardian for this purpose as well. It may be the same person you nominate in your will, or you may want to choose someone who is closer to where you live.
Ensure that you leave sufficient financial resources to raise your children.
A guardian would be appointed to raise your child, but you should consider the financial impact of that responsibility. Most people don’t have the financial resources to unexpectedly add a child to their household. Providing sufficient funds for your children’s care will make that adjustment easier. Unless you have substantial assets, life insurance is generally the best way to ensure that adequate funds would be available.
Leave your assets in a trust instead of outright.
Many parents believe that a simple will suffices to take care of their estate planning needs. However, few understand the consequences of simply leaving their assets equally to their children in a will. Minors lack the legal capacity to own property or enter into contracts, so assets left to a child are subject to court supervision until the child turns 18. Such supervision can be costly and often imposes an unnecessary burden on the guardian, who must make regular accountings to a judge. Furthermore, when the child turns 18, he or she has unfettered access to the funds in the account, even though an 18-year-old seldom possesses the financial maturity to handle substantial sums of money.
By leaving your assets in a trust for the benefit of all your children, you avoid involvement of the court and provide more flexibility for the guardian, who can allocate the money equitably – which is not always the same thing as equally. Suppose one child was in an accident and incurred substantial medical bills. If your assets were left equally to your children in a will, the guardian could not use one child’s share of the assets to pay for another child’s medical expenses. In another example, suppose one child was finishing college and another was still in high school. Dividing your assets equally between the children might leave the guardian with insufficient funds to raise the younger child and pay for his or her education. A trust allows a trustee of your choosing to distribute the trust funds equitably in order to meet the differing needs of all your children. The trust also serves as protection from your child’s creditors and allows the trustee to retain control over the funds until a date specified by you – not simply when your child turns 18.
Protect against taxes.
If everything you own, plus your life insurance benefit, exceeds $3 million ($6 million per couple),1 you might consider placing the life insurance policy into a trust during your lifetime to ensure that the proceeds would not be subject to estate taxes. An irrevocable life insurance trust is often the best way for parents to protect against federal estate taxes without relinquishing access to their assets, which they might need for retirement.
Draft a letter with instructions for your guardian about how you would like your children to be raised.
After you’ve decided on a guardian, you may want to draft a letter of instructions about how you’d like your children to be raised. While such a document is not legally binding, it can help the guardian to understand the things that are important to you and to raise your children in accordance with your wishes. For example, the letter might address what kind of school you would want them to attend, what type of religious upbringing you’d like them to have, what values you’d want instilled in them. All of these things can make a critical difference in a children’s upbringing, and it may help the guardian to make decisions regarding your children’s care. A letter of instruction is also a good opportunity to make sure the guardian is aware of any particular emotional or health issues your children might have and information about medications, and physicians.
While we can’t make ourselves immune from misfortune or illness, a good plan can help prevent a tragic situation from becoming even more distressing and burdensome for those we love. Taking the steps outlined above will give you the piece of mind of knowing you’ve done everything you can to protect your children and ensure they’re taken care of if you’re not able to take care of them yourself.
1 If you live in New York State, such a trust may be appropriate for individuals with assets of more than $1 million and married couples with assets of more than $2 million in order to avoid estate tax at the state level.
If you would like help preparing for your child’s future needs
Contact The Law Offices of Shannon McNulty today. Shannon is an experienced estate planning attorney with offices in Philadelphia and Scranton.