However, it is important for you to think about and plan for these unexpected contingencies. Losing a family member is difficult, but it can be even harder if you do not determine in advance what will happen to your assets or your children upon your death. Our firm makes basic estate planning easy and there are different levels of planning to fit each family's needs and budget. Setting up a plan can prevent family members from dealing with a long and expensive legal process to determine who receives your assets and who will raise your children.
Powers of Attorney
Every adult, even an eighteen-year-old going off to college, should have a Medical Power of Attorney and a Financial Power of Attorney. These documents allow you to designate one or more agents to make decisions in the event that you are alive but incapacitated. Preparing a comprehensive power of attorney allows your chosen family or friends to care for you without the requirement of a court proceeding to prove incompetence and appoint a guardian or conservator.
Even spouses need powers of attorney for one another -- many transactions, such as buying and selling real estate, signing tax returns, opening and closing bank accounts, etc., require the signatures of both spouses. If you are a single parent, you can designate a family member or trusted friend to act as your agent, ensuring that your children have access to your financial resources if you are temporarily incapacitated.
Creating or updating a Will and Trust
Second, you should work with a lawyer to create or update your Last Will and Testament. Each parent will have their own Will that designates the beneficiaries of that parent's estate upon their death. In addition, you can specify the guardians for your minor children in the event that both parents die. You can also write a Designation of Standby Guardians to specify who cares for your children if you become incapacitated or debilitated with an illness.
When deciding upon guardians for your minor children, it is important to discuss guardianship with the friends or family that would receive your children. In addition to choosing guardians, you should have a financial plan in place to ensure that the guardians of your children have the resources to take care of your children. In most cases, obtaining life insurance is the best solution for younger parents.
By creating a Trust to receive the assets and life insurance proceeds for minor children, you can place restrictions on the use of the funds and set goals for your children to reach in the future. Without a Trust, minor children receive full access to their inheritance when they turn eighteen years old. Most parents prefer to use a Trust to ensure that their children are financially and emotionally mature enough to manage their own finances before they receive outright control over their inheritance, while ensuring that the Trust provides for living expenses, health care and education expenses as their children grow.
You can either create a Testamentary Trust as part of your Will, or a Revocable Living Trust during your lifetime. The Revocable Living Trust is more work to establish, but allows assets to pass to beneficiaries without probate court supervision and the time and costs involved in probate. For many young couples with children, the Testamentary Trust is a good first step towards a Revocable Living Trust, with less work to establish and a lower initial cost.
Designating children as beneficiaries to retirement accounts and life insurance policies
In addition to creating a Will, you will need to list your children or your children's Trust as beneficiaries to all retirement accounts and life insurance policies. Even if your Will leaves all of your assets to your children or a Trust for your children, it is important to take this step because beneficiary designations will always trump whatever is written in a Will. Moreover, if a retirement account has no beneficiary, it will go into your probate estate, resulting in your children losing the tax benefits of deferred or tax-free growth.