As the mother of three minor children, I am acutely aware of how vulnerable my children would be if something happened to me. However, many young families procrastinate when planning their estate, without realizing the dire consequences of their negligence. Creating an estate plan is not just for the elderly, the sick or the wealthy, everyone with children must create an estate plan. An estate plan is a gift to our children and will provide us with the peace of mind, and our children with the security, that we all deserve. New Year's Day is a great time to reflect on the past and plan for the future. Make 2017 the year you stop putting off your estate planning. Here's how a good estate plan will protect your family and your assets in the event the unexpected were to happen:
Designate Guardians and Trustees for Your Children. Perhaps the most motivating concern for parents is the care of minor or dependent children in the event of the death of one or both parents. All individuals with minor children should execute Wills in order to name guardians for their children. If you are a single parent, it is even more critical to have these decisions made as soon as possible and documented in a Will. When appointing the physical custodian of a minor child, you should also designate the trustee to manage the child’s inheritance. Without a Will, the court would appoint a Guardian for your minor children. The court may not name a person whom you would want to take responsibility for your children or feel would make decisions in the best interests of your children. Having a court-appointed Guardian can also result in complications in estate management. For instance, any money used to pay for your children's education, clothing and living costs would require prior approval of the court, even if your spouse is appointed Guardian. Furthermore, law requires annual accountings of income and expenses to the court, and investment of the funds by the Guardian will be limited to choices approved by the court. If the Guardianship lasts for any significant length of time, the investment limitations imposed by the court may prevent the children's funds from growing at an acceptable rate.
Designate Beneficiaries of your Estate. A Will does more than appoint guardians for minor or dependent children. A Will also outlines exactly how you would like your property distributed upon your death. Many individuals have not even considered who will inherit their assets if they do not have a Will. If an individual dies without a Will or "intestate", the courts will take control of the individual's estate and distribute his or her assets according to the intestacy laws of the state in which the individual resides at the time of his or her death. In other words, the government becomes an individual's estate planner when he or she dies intestate, through statutes which provide for the administration and distribution of the individual's estate. You may be surprised to learn that your spouse, parents, children and/or siblings will share in the inheritance under New York law, depending upon the relatives that survive you. Very often, those who ultimately share in a decedent's inheritance under the intestacy laws are not the same people who would have otherwise inherited the property had the individual died with a Will.
Designate Beneficiaries of Your Life Insurance and Retirement Accounts. Beneficiaries on life insurance and retirement accounts, including 401(k)s and IRAs, take precedence over what is designated in a Will. If you would like your assets to go to your spouse and/or to your children, it is imperative that you name the right beneficiaries. Minor children should never be named directly as primary or contingent beneficiaries, as they cannot own property directly until the age of majority. You must, instead, name a trust that will hold the assets for them until they are of the appropriate age.
Create a Trust for a Minor Beneficiary. Without an estate plan, your children could inherit all of your assets upon reaching age 18. For the majority of people, 18 is too young to handle that kind of responsibility. A trust is an ideal tool for a beneficiary who is too young or does not have the proper investment skills to manage his or her inheritance. First, it can be used to name a person or institution as the investment trustee until the beneficiary is capable. Second, a trust can be used to distribute funds over time to protect assets from a beneficiary’s own misjudgment or spendthrift tendencies. Third, the trust can be used to provide supplemental benefits to a beneficiary with special needs, without disqualifying the beneficiary from government support.
Obtain Income Replacement. One of the primary consequences if something should happen to the wage earners of the family is that his or her income will be lost forever. The money earned to pay for food, clothing, shelter and education will need to be replaced. Evaluating how much life insurance your family needs to pay the bills, including debts and funeral expenses, if something should happen to you is critical to the financial protection of your family. If you have dependent children, it is likely that you need life insurance. Term life insurance is often a very inexpensive option for young parents.
Appoint an Executor. Under a Will, you may designate an Executor who is responsible, upon your death, for taking inventory of your property; preserving the estate; paying creditors, administrative expenses and any death taxes; and disposing of the remainder of your property among your beneficiaries. Since the Executor is entitled to a fee and undertakes significant responsibility with respect to your assets, most people prefer to select someone they know and trust to oversee the administration of their estate, rather than having the court appoint an Executor of its choice.
Minimizing Estate, Gift and Income Taxes. Depending upon your level of wealth, through appropriate tax planning, you may prevent some or all of your assets from being subject to estate tax upon your death. This will allow more of your estate to ultimately pass to your children and loved ones, and less to be lost to taxes. Without a Will, your estate will not have the benefit of any tax planning to minimize the often confiscatory effects of federal and state death taxes and income taxes.
Make Decisions Regarding your Healthcare. You should consider both who will make medical decisions in the event you are incapacitated and whether you wish to remain on life support. Without a health care proxy, New York state law dictates who the decision maker will be. A living will enables you to state your wishes for your end-of-life medical care if you become incapacitated. This covers issues such as pain management, breathing resuscitation and organ donation. Instead of leaving the responsibility of such a decision to a grieving loved one, specify your wishes now.
Appoint an Individual to Handle Your Finances Upon Incapacity. In addition to considering who will manage and benefit from your assets after your death, you need to have a succession plan in the event of your incapacity. This may take the form of a durable power of attorney, trust planning or a combination thereof. Individuals with businesses may want to name different people for purposes of running their company and managing their personal assets.
If you already have an estate plan, it should, without question, be reviewed and updated periodically. In particular, if your net worth or income has changed significantly or if you have experienced life changes, such as (1) marriage, divorce or remarriage (you do not want an ex-spouse to receive your assets); (2) birth or adoption of a child or grandchild (you want to name an appropriate guardian and not unintentionally disinherit that child); (3) your child has reached the age of majority (it is important that they execute health care proxies, HIPAA notices and powers of attorney, so that you have access to their medical and financial information, since they are now considered adults); (4) one of your beneficiaries, such as a child, grandchild, spouse, partner or parent, has become a person with special needs (you want to ensure that their inheritances will not disqualify them from receiving government benefits); or (5) you have become part of an unmarried, committed couple (without a Will or trust, your partner may not receive any of your estate under state law).
Please contact Lara M. Sass, PLLC today to ensure that your children and your assets are protected as soon as possible. Within two weeks of your initial meeting with us, we can have documents in place that will give you peace of mind.