This article appeared in the Gloucester Gazette on March 14, 2017
Proper estate planning should be a priority for young parents. Though parents do not expect to pass away while their children are little, tragedies do happen and it is important for you to be prepared. A comprehensive estate plan will give you peace of mind in the present and financial security for your children in the future.
Though every estate plan is unique, a plan for a young family will probably include the following elements:
Your Power of Attorney (“PoA”)
In your Power of Attorney, you name the person(s) or entity that will manage your finances while you are still living but unable to manage them yourself. This person is called your agent. So, for example, if you get lost on an African Safari, your agent could pay your bills, manage your income, and care for your children’s financial needs until you came home. If you got in an accident and were in a coma for two months, your agent would handle all of your family’s financial needs until you woke up. If you developed some sort of permanent disability, your PoA would also instruct your Agent to provide your Will to the Court to determine who the guardian of your children should be.
If you fail to execute a PoA before you become incapacitated, someone will have to go to court to get appointed as your conservator. This is an expensive and time-consuming process, and your children will be without financial access in the meantime. Executing a PoA will ensure that your children are cared for while you are incapacitated but still living.
Your Will has two primary functions. First, you name the person who would be the guardian for your minor children. It is important that your children are raised by someone who you trust! It can also reduce conflict should family members “fight” over the kids after you are gone.
Secondly, your will directs the disposition of your assets after you die. If you have children, then you will probably leave everything to them in a special trust called a Younger Beneficiaries Trust (“YBT”). The person who manages the YBT is called the Trustee. This could be the same individual who will be your child’s guardian, or it could be someone else. You get to pick the age at which your children will take possession of the assets themselves. You can also give your Trustee specific instructions about what things the money should and should not be used for. The YBT will terminate when your children reach the decided age and everything is distributed to them.
If you do not have a will, all of these decisions will be made by a judge, and your children will acquire control of your assets when they turn 18.
Your Revocable Living Trust (“RLT”)
Depending on your situation, you may choose to create an RLT. An RLT works in conjunction with your PoA and will streamline the control and disposition of your assets through your incapacity and death. The primary advantage of an RLT for a young family is that there is no court oversight of the YBT. If you do not have an RLT, then the Trustee of the YBT will have to make annual reports to the probate Commissioner. These reports are time-consuming and expensive. If you have an RLT, then the trustee of the YBT will manage the trust in privacy with no court oversight. If you have significant assets in a qualified retirement plan, you may need to name the RLT the beneficiary of those plans because you would not want to name a minor as the beneficiary.
First, make sure that you have adequate life insurance to eliminate your family debt and provide living expenses for several years. If you are reasonably young and healthy, purchasing this much term life insurance will be relatively inexpensive. The primary beneficiary should be your spouse if you are married. The secondary beneficiary should be your estate, or your RLT if you have one. This will ensure that the life insurance proceeds are funneled into the YBT and do not go directly to your children when they reach 18.
Putting your Plan in Place
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