Why Parents Need an Estate Plan

Everybody should have an estate plan. But, planning is critical for parents with minor children. Surely, one of the things a new parent does is to make sure that they have life insurance to protect their young ones. Well, think of an estate plan as an extension of that life insurance.

First, and most important, every parent should think about whom they would want to raise their children if the parents were gone. This is by far the hardest thing for any parent to think about. But, it is the most critical. You don't want your children to find themselves the wards of the court. Court battles can be messy, and can take time. Meanwhile, the children may need to be in foster care until the case can be completed and a new guardian appointed. You want to make sure that you decide who is going to raise them. Plus, in Virginia, this step is easy to do. Appointing a standby guardian who can act immediately upon an emergency is a simple act of completing a one page document.

Once you know who could be taking care of your children, you need to give them the tools. In this regard, note that leaving a large sum of money to a minor directly is a bad thing. If no one is named as custodian, then there will have to be proceedings to name a guardian of the estate. This includes the appointment of a guardian ad litem to investigate the case. In Fairfax County, I've noticed that not all guardians ad litem understand the law completely and may insist that the money left to a minor, including insurance proceeds, be deposited with the court until the minor reaches eighteen. Plus, we have the added problem that under the law, any money left to a minor directly becomes the minor's money at age eighteen with no strings attached. How many eighteen year olds who you know are responsible to manage thousands of dollars given to them all at once?

The simple and most flexible solution is a living trust, either naming the potential guardian as the contingent trustee to take over after the parents' deaths, or naming another responsible person as the contingent trustee with instructions to cooperate with the potential guardian. Naming the trust as the beneficiary of life insurance proceeds should both parents pass is one way to make sure that all of the money is managed in a single, simple plan.

The point is that all of this is simple to create. It takes just a few meetings with a lawyer to plan, and some thought on the part of the parent. But, for a parent, it is one of the most critical things you can do to protect your children.

Non-Probate Assets Are an Important Part of Your Plan

This article reminds us of how important it is to make sure you are naming your beneficiaries properly. Pay on death accounts or accounts with a death beneficiary are an important part of your estate plan. They are meant to pass property, such as life insurance proceeds, or retirement accounts, without the need to go through the probate court. But, since they are not governed by the court, you need to make sure that you are naming your beneficiaries properly.

For example, when I have a couple with young children, I normally recommend a living trust as the corner stone of the estate plan, so money can be managed for the children should the parents meet an early demise. But, for most young couples, their "wealth" will be held in pay on death accounts like life insurance. For the plan to work, the couples have to change their beneficiaries to the trust.

Likewise, it is important on major life events to change the beneficiaries of the accounts. Such events include a marriage, a divorce, a death in the family, or some similar event. It is a good idea to review the beneficiaries regularly to make sure your estate plan is working the way you intend it to work.

Young Families Need a Good Plan

Estate planning is not just for more established people, who want to direct who gets their money. Families with young children have special reasons to plan. Parents need to plan to make sure that their children are protected and cared for.

Your estate plan is not just about money. You can name whom you want to act as the guardian of your minor children should you meet an early demise. This avoids leaving the decision entirely to a judge who knows nothing about you. Your estate plan can include instructions to your child's guardian on how you would want your children raised, and what values are important to you.

For a young family, a good estate plan should also include a method to manage money until the child reaches an age when he or she can be more responsible. This is often done through a trust, which can act as the beneficiary for insurance policies and retirement accounts. You can appoint a trusted person to manage the money, and instruct that person to cooperate with your child's guardian.

Young families should contact an attorney early, and make sure that their children are protected.

Even Those With Less Than $1 Million Need to Plan

This article explains what estate planning is, and why even those without $1 million need to plan. For Virginia residents, anyone with more than $50,000 in assets needs to plan. I have seen estates worth around $100,000 incur over $10,000 in estate administration costs. Spending $2,000 or less to consult with a lawyer can save both the expense and the hassle.

The 25 Documents You Need Before You Die

The 25 Documents You Need Before You Die

Planning for Adults with No Children

Recently in my practice, I have noticed something of a trend. That trend is the growing number of older adults who are single, childless and seeking estate planning advice. There are a host of reasons why they are single and childless. Some may have gone through a divorce and never remarried. Some may have been widowed. Some may have focused so much on their careers that they simply never married and had children.

Planning for this set of the population presents some special challenges. The first of such challenges is determining who to choose to serve in various positions of trust, called fiduciaries. Often, when you have a married couple with mature adult children, the couple will look first to the adult children to serve in such positions as executor, trustee or health care agent. When you have an older adult who does not have any children, however, the choice of who shall serve in these positions is not as obvious.

When the single older adult has siblings, often they will think first of appointing a sibling to serve in a position of trust. This, however, can present some special considerations. First, siblings tend to be relatively close in age. Thus, there is a question of whether the sibling will actually pass away first. This could leave the older adult in need of appointing new fiduciaries when their siblings pass away. There is also the risk that once the older adult passes away, the sibling will be unable to take on the role of fiduciary because of factors such as dementia or other health conditions. These problems can be avoided by having the older adult appoint alternative fiduciaries to serve in the event that their first choice either passes away first, or cannot serve for other reasons.

Another potential problem is that siblings may live in different areas of the country. If the sibling must travel a long distance in order to accept an appointment, that may serve as a disincentive to act. In this regard, the older adult should understand that accepting a fiduciary role is voluntary. Even if a person is named in a legal document, that person can still turn down the role.

In some cases, there may be a niece or nephew who is close, in an emotional sense, to the older adult. Such a person may be a better choice, simply because a niece or nephew is likely younger, and thus more likely to outlive the older adult. But, in some cases nieces and nephews may also live quite a distance away from the older adult. Moreover, if the niece or nephew is appointed as an agent to make health care decisions, there could be question of whether that niece of nephew truly knows what the older person would have wanted.

An older adult could look to friends and co-workers. Again, because people tend to associate with others who are close to them in age, this may not alleviate the concern of who will be the first to pass away. Plus, despite friendship, some people may be hesitant to ask someone who is not a relative to take on the burden of administering their estate, or making health care decisions for them.

There may be no simple solution to the dilemma of appointing fiduciaries. At the very least, there should be alternatives named in case the primary choices are unwilling or unable to serve. But, identifying the people who will serve may take some additional time and consideration.

The next issue is exactly what to do with the older adult’s wealth after death. If the older adult has no children, then there will be no obvious choice to inherit that person’s estate. In some situations, the older adult may have done a great job in planning for retirement. He or she may have valuable retirement accounts and investments. He or she may also own real property.

To whom the estate should be left is a very personal question. This may an opportunity for the older adult to leave a legacy, and thus give much of the estate to charity. Perhaps there is a favorite sibling or nephew to whom the older adult would like to leave a gift. Perhaps the older adult has simply not thought about their distribution plan.

What is certain is that if the older adult does not create an estate plan, the state government will create one for them. When a person has not left a will, or placed his or her property in trust, then that is called intestacy. The intestacy laws will then determine who inherits the person’s property. Intestacy laws vary by jurisdiction. But, they tend to favor relatives. Usually, spouse and/or children are the first choice to inherit the estate. If the older adult has no spouse or children, intestacy laws usually look first to see if there is a surviving parent, then brother or sister. In the end, if there is no one to take the estate, then the property will escheat. That means it will belong to the state. If the older adult is not happy with this plan, then it is imperative that he or she think long and hard about how he or she would want his or her property distributed.

The unique challenges presented by single, older adults without children require greater attention and consideration. Consulting with a professional may be helpful, but it may not answer all of the questions. In the end, the choices in creating an estate plan are very personal, and should match a person’s own goals and values.

Preparing for Probate

It is traumatic enough when a loved one dies. Eventually, however, someone faces the task of wrapping up the affairs of the dearly departed. It can be daunting. There are bills to be paid, property to find, and, if anything is left, heirs to be paid.

How should someone begin? First, forget everything you've ever seen on TV. There is never a time when all of the heirs and people mentioned in the will are brought into a room for a formal reading of the will. Quite frankly, administering an estate will take time. It could be months before anyone really knows where the money is going.

First, you need to see if there is a will. Often, close relatives will know if there is a will and where it is kept. If you know who the decedent's attorney was, the attorney may know. Some people will file their will with the probate court while they are still alive. In some jurisdictions, if you are in possession of someone's will, you are legally obligated to come forward and file it. Failure to do so in the right period of time could result in fines.

You certainly should not wait for the will to be found to make funeral or memorial arrangements. With the time it takes to probate an estate, the will is not the place to put funeral or memorial instructions.

Next, you need to start identifying the decedent's assets. Did he own a house? Does he have a bank account? What other possessions did the decedent have? It may be necessary to safeguard the decedent's property until the administration is complete. If the decedent owns real estate, and no one else will live there, the utility companies should be notified.

Next, it is time to consider whether the decedent left a spouse and/or children. Immediate family will likely be entitled to an allowance from the estate until the administration is complete. This is also the time to consider whether the decedent had any pay on death accounts, such as life insurance or pension benefits. It is also the time to consider whether to file for any survivor's Social Security benefits. The final income tax return may need to be filed.

Whoever is responsible for winding up the decedent's affairs should also try to collect some initial information about the decedent's debts. Once initial information about a decedent's assets and debts have been collected, it may be time to file to open a probate estate. Many jurisdictions charge a probate fee based on the value of the property which will pass through probate. This is why you need at least a good estimate of the decedent's assets and liabilities before filing for probate. Notices will need to be given to the decedent's heirs at law, heirs mentioned in the will, and known creditors. A notice may need to be published in a newspaper.

In some states, if the assets are so few, it may not be necessary to probate the estate. Also, if the decedent's assets were mostly held in pay on death accounts, there may not be enough assets passing through a will or the law of intestacy to open an estate with the probate court.

Once an estate has been opened, the person in charge of winding up the affairs (depending on the circumstances this is the executor or the personal representative) will need to obtain a tax identification number for the estate, and open a bank account for the estate. The decedent's other accounts may need to be transferred to the new account.

The administrator will also have to be familiar with the probate court requirements. Usually, an inventory of the decedent's assets will need to be filed with the court and provided to the heirs and creditors. Later, the administrator will likely need to file accountings to show how the decedent's assets have been managed. The administrator should be sure to keep receipts.

There will usually be some kind of proceeding to determine the claims of any creditors. Once all creditors have been identified, their claims should be examined to determine their validity. Each jurisdiction will likely have in its law a listing of which claims have priority. The claims must be paid in that order. If anything is left over, the administrator may then be required to file an estate tax return and pay any estate or inheritance tax due. Then, the heirs can be paid.

Once all of these steps have been taken, then the administrator can file to close the estate. This an important step. In many states, opening the estate places the tax authorities on notice. The tax authorities will be looking for the estate to be closed to make sure any taxes that are due will be paid.

Probate need not be feared. While it involves a lot of steps, with proper advice and organization, it can go smoothly.

Blended Families Require Special Estate Planning

If you are part of a blended family, then you may need to do some special estate planning to ensure that your personal goals are met.

A blended family is one where either spouse has children from a prior marriage or relationship. Blended families raise estate planning issues because of the need to balance responsibilities to the current spouse, as well as to the children from the prior relationship.

Without special planning, you may find that you goals are not being met.
For example, in Virginia, where a person is married, but has children from a prior relationship, and that person dies without a will, then one-third of the estate passes to the current spouse, and two-thirds are split among all of the decedent’s children. Notice, by the way, that I specifically said “prior relationship,” and not “prior marriage.” That is in recognition that the law protects illegitimate children as much as legitimate children.

This default estate plan, which is called the law of intestacy, may cause some problems for your surviving loved ones. For example, if you have children from a prior marriage, but they are adults, and your current spouse depends on your income and property, the law of intestacy works against your current spouse.

The solution is to carefully think about your family responsibilities and your estate plan goals, talk about them with your spouse, and work with an estate planning attorney to make your goals happen. Here are some tips on how you may be able to achieve your estate planning goals.

Communicate with Your Spouse

The first step is to make sure that you and your spouse are on the same page. Talk openly about your responsibilities to your children from your prior relationship. Talk about your expectations for any children you may have in your current marriage. Talk about what property rights you have, and how you expect to dispose of those rights on your death.

Conclude a Prenuptial or Marital Agreement

Once you and your current spouse (or, ideally your future spouse) have discussed your respective responsibilities, you should come to an understanding concerning your property. Formalize that understanding with a prenuptial agreement (before the wedding) or marital agreement (after the wedding). In Virginia, a marital agreement is just as valid as a prenuptial agreement.

Many people will resist prenuptial agreements with their future spouses. Some view them as merely planning for an eventual divorce. Some of your friends, or even misinformed attorneys may echo that thought.

A prenuptial or marital agreement, however, is not simply planning for an eventual divorce. Rather, it can be a tool to start the conversation about property and expectations. It can be an opportunity to clarify estate planning goals. Formalizing the expectations in a written agreement can avoid confusion and misunderstandings later in the marriage.

For example, if both spouses are coming into a marriage with their own property, it could be that neither spouse would be dependent on the property of the other after one passes away. In such a situation, the spouses may agree to waive any interest in each other’s estate plan, in order to permit the other spouse to address other family responsibilities.

Or, it could be that your spouse is dependent on your income and property. But, to fulfill family obligations, you may want to take care of your spouse for life, and have your property pass to your family upon her death. This can be addressed in a prenuptial or marital agreement.

Put Your Plan into Action

Finally, you need to develop the tools to put your plan into action. The tools could involve a trust to benefit your spouse during her life, but then pass the property to your children on her death. The tools could involve life insurance, and properly structuring the life insurance. These are all issues you should address with your estate planning attorney and other professionals, such as an accountant and financial advisor.

With proper communication and planning, you can balance your family obligations, and manage the expectations of your loved ones.