Setting up an estate plan is a smart decision for any individual, no matter their financial or personal situation, but for families with young children, a well-thought-out and clearly structured estate plan is essential. Regardless of your age, planning for incapacity or death can understandably be uncomfortable, scary and intimidating. Even though it can be a difficult subject to confront, at its core, estate planning is about taking control. Your estate planning attorney can help you create an estate plan will ensure that what you own (money, property, real estate, etc.) is transferred to the right people, in the right way and at the right time. Any parent knows that when you have a child, everything else takes a back seat. Parents must realize the importance of addressing sensitive subjects, such as their death or incapacity, when they have a child. Part of loving and protecting your family is providing for the possibility of events unfolding differently than you’ve envisioned. The question of what will happen to your children if you die will be answered one way or another. The amount of control you will have over the answer (and your estate’s administration) is entirely up to you. As a parent, you do everything in your power to do protect your children during your lifetime. Would you want to give up that control and leave anything up to chance?
Many people incorrectly assume that they do not need an estate plan (or even a basic Last Will and Testament) for various reasons:
You might think you are too young right now and will have plenty of time to make one later. You may be thinking that you don’t have enough money or other very valuable assets to need any kind of trusts or wills in place. You may simply not be thinking at all about the grim reality that accidents happen and untimely deaths are an unpleasant reality. You might just be relying on your family to “figure it out,” leave it up to them and hope for the best. Finally, maybe you are relying on the laws of the state you live in.
Unfortunately, this type of thinking (or such avoidance of the topic) can cause tremendous harm if you do not understand the full implications of what could happen if you die without leaving any indication of what you want. And sadly, at that point, an issue that could have never arisen will be too late to fix. A person who dies before putting together a plan simply gives up all control by default to the state in which he/she lives.
Providing for spouses, parents and all other non-minors is definitely important. But as a young family, you MUST ask yourself: What would happen to my children if I died tomorrow? Who will take care of them if I can no longer do it? Who will manage assets for their benefit? Who can I trust to provide for their daily comfort, protection and care? Also, is there anyone in my family who I DO NOT want or trust to take care of them properly? Without an estate plan, you are leaving all of these major decisions up to chance. An estate lawyer will help make sure this does not happen. No matter how unpleasant these topics are to ponder, the important and responsible thing to do is to have a plan that ensures that your kids will be safe. As a young parent, you may have a parent or another close relative that you would want to care for your kids. If you simply “want” it, there is absolutely no guarantee that a court will enforce that desire without proper legal technicalities. Without even a basic Last Will and Testament, you will not get any say about who assumes custody of your children. A judge that never met you, and has no knowledge of your intent or wishes, will appoint a legal guardian for your children and an executor of your estate.
Each state has a comprehensive law that arbitrarily regulates estate administration, names the executor of the estate and designates where all of your assets will go. It is important to understand the probate process. What is probate? It is a court proceeding in which a judge declares a will to be valid and appoints the individual responsible for handling the administration of the decedent’s estate. If a will exists, the court determines its validity and appoints the executor named in the will to carry out the probate process in a probate proceeding. If a person dies intestate (without a valid Will) the court needs to locate an appropriate interested party that will be appointed to serve as the administrator in the administration proceeding. To carry out the probate process beneficiaries, heirs and creditors and any other interested party must receive proper legal notice of the probate proceeding. All the parties need to be located. All the assets in the estate need to be located. Liabilities need to be determined and paid for along with taxes and any other outstanding debts. The beneficiaries must then wait for the court to issue an order on the petition before anyone is authorized to administer the decedent’s individually held assets. Only then, after all of these events are completed to the satisfaction of the Court, will the remaining assets be distributed to the beneficiaries.
So, the question arises: What is the best way to provide for your kids in an estate plan?
First, ask your estate planning attorney about the benefits of creating a Living Trust with a pour over Will provision and also about the benefits that various Living Trusts could provide. One of the most comprehensive and well-designed estate documents is the Revocable Living Trust. A will comes into effect only when a person dies but a living trust can start to function during the person’s lifetime. The document that creates the trust names the trustee and beneficiary and also sets for the rules by which the trust will be administered. For the trust instrument to be valid, you must properly fund the trust by transferring the property into the trust once it is established. You can transfer most types of property into the trust to fund the trust. You can also initially put in a nominal amount and then transfer more assets into the trust during your lifetime. In a revocable trust, the settlor (the person that created the trust) is often both the initial trustee and the sole beneficiary of the trust. This type of trust agreement gives you the power to revoke or amend it at any time. Choosing to create a Living Trust effectively offers maximum flexibility in disposing of your assets and allows you to retain total control.
You should consider the option of Nominating a Guardian for your children in your Last Will and Testament. This guardianship provision will ensure that the RIGHT person will take care of your kids. This way a judge will have a clear indication of your intent to have the named person or persons entrusted with the care of your children. Remember that complicated situations arise during estate administration. There may be separate court hearings to determine who will be named an executor of the estate in charge of any finances that were left and that legally belong to the underage children. The children will not have access to the finances until the age of 18. The guardian of the estate (financial guardian) may not be the same person that is awarded custody of the children. This means that there may be two separate people appointed, one to care for the kids and one to oversee the funds in your estate at your death. Ultimately, the children will get the full sum and access to all that is in your estate when they turn 18. This might be risky due to the financial inexperience and/or immaturity of the 18-year-old and often leads to the child carelessly spending (squandering) the funds. Naming the key figures in your will or trust, like an executor of your estate, trustee in charge of trust administration, or a Guardian for your children, is crucial.
Remember that the executor of your estate must probate a Last Will and Testament. Probate is necessary if assets are transferred by a will or by intestacy. However, under New York trust law, a Living Trust is set up in such a way that the trust owns the assets to be left to the beneficiaries. By re-titling all of your assets into these trusts, it is possible to avoid probate proceedings entirely or to at least substantially simplify any potential probate proceeding. Since the Living Trust owns the assets, the assets are not considered part of the probate estate. Therefore, the estate administration of a Living Trust allows for the avoidance of the probate estate process which is often expensive, time-consuming and public. When the settlor dies, a successor trustee can step in almost immediately to administer the trust property. Further, the desire to keep financial matters private and protected is what prompts many individuals to choose to set up a trust instrument over a Will. With a Living Trust, the Trustee oversees the distribution of the property according to the specific (and private) terms of the trust without any public proceeding. The Living Trust is a better way of giving your loved ones unfettered access to the funds that you wanted them to have. It is also important to note that Living Trusts are harder to contest than Wills.
A Living Trust has what is called a “Pour-Over Will” that can serve two crucial functions. First, it allows you to nominate a guardian for your underage and children. Secondly, it acts as a safety net for any assets that may be left over in your estate or any assets that were not transferred into the trust. This safety net will allow you to make sure that any assets not in the trust will be transferred and owned by the trust in case death occurs before your assets are properly transferred into the living trust. In a pour-over will, the trust is named as the residuary beneficiary of the estate. It is a reality that we must face that we are unable to plan for every contingency.
As a probate lawyer or estate lawyer can explain, it is common for parents to name themselves as the trustees and someone else (investment expert, family member, banker, friend, guardian) is named as the Successor Trustee. Upon the death or incapacity of the trustees, the Successor Trustee becomes responsible for managing the trust assets for the benefit of its ultimate beneficiaries. Like the creator(s) of the will (the parents who were the initial trustees of the trust), the Successor Trustee is required to manage and distribute the estate strictly according to the terms of the living trust. A Living Trust guarantees the most control over the distributions and ensures that your children will be provided for until adulthood in the manner you decide. It can delay disbursements until specific events occur like a graduation or marriage or for specific expenses like medical costs or travel. You can also draft your Living Trust to protect the assets from your creditors, ex-spouses, future ex-spouses and even your children’s creditors or children’s spouses. Your children will get the assets you want them to have and they will get the assets at the time that you think best, not categorically all in a lump sum at the age of 18. A Living Trust is the best way to ensure that you provide your children and loved ones with unfettered access to the assets that you have left for them, properly protected from their creditors and spouses, all in accordance to your plan and intent.
You do not want your children’s livelihoods to become tied up in the judicial process or get frozen in a way that they have no access to, or even ability to ask for, small distributions. For families with young children, a well thought out and clearly structured estate plan is absolutely essential. An estate planning attorney will be able to thoughtfully and meaningfully assist you throughout the planning process and help ensure that your loved ones are protected.