If you have been listening to my radio shows or podcasts, and reading my blogs, you will know that I have focussed a lot on estate planning for retirees, or soon to be retirees, and how to protect their stuff and their family from the issues that they face. These include care costs, eventual probate expenses and taxes. For most of my career I have been dedicated to working through those issues. In fact, my law firm exists because I watched my own grandfather go through all of this money paying for care. Sadly he was battling Alzheimer’s disease and spent many years in a nursing home. Having spent so many years working on elder law issues, we’ve become to know how to properly plan for these issues.
Working With Young Families
Recently we’ve been working with folks from a young family demographic. My wife and I recently redid our own personal estate plan because our children are getting older, and there are changes in our financial situation too. It is necessary every few years to see if our estate plan does what we want it to do. Most of us learn from our experiences and the situations we find ourselves in, and how to respond the next time. That’s one of the one of the great things about life because we get to learn from mistakes and challenges.
I’ve been through some challenges with some families that are similarly situated to mine, when has thrown them a curveball. Many of them have had to deal with injuries, disabilities and deaths, as well as unexpected situations. This has made me realise the importance of needing to plan when it comes to younger families. We actually have an entire webinar series for younger families, called “Five Secrets to Protect Your Family”. We teach you the things you need to know to protect your kids from the cradle to college.
Raising Good Humans
As parents of young children, I think our primary job is to raise good humans who will be happy and self sufficient. Hopefully they will find careers that they’re passionate about and a spouse they love and are happy with. Eventually they will have their own kids and it is my job to prepare them for that. I think we also need to accept that our duty of raising good humans who will outlive us, is something we need to plan for too. We need to also face the reality that although it would be devastating if both parents passed away suddenly, there needs to be plan in place for the kids to be taken care of.
A Simple Will Is Not Enough
Unfortunately, most young parents of young kids don’t actually plan for this. Most young families only have a will which will name who gets the stuff when they pass away. Most young families often don’t have many assets, so it is important for them to buy life insurance. You would definitely need life insurance or a retirement account. While it is not enough to only have a Will, it can be used to do some planning. You would need to name an executor who will administer your estate, and guardians for your kids. A guardian would essentially step into your shoes if you pass away. However, guardianship ends when your child is 18 years of age. While they are considered an adult at age 18, leaving money to your 18 year old could be a big mistake for many reasons.
I know that people will advise you that you only need a simple Will, which states that everything is left to your spouse and then to your kids. If your kid is a minor when they inherit money, your kid will get their money in a Uniform Transfer to Minors Act Account. This means that somebody else would be in control of the money, until the kid turns 21. However, after the age of 21, your kid is on their own. If I think about it, if at the age of 21 I had been left an inheritance of a million dollars, I would not have make good decisions with spending the money. I don’t believe most 21 year old kids would know what to do either. This illustrates why it is not enough to just have a Will, and why one needs to plan for all eventualities.
Why You Should Create a Trust for Your Child
I would encourage you to create trusts. The Trust has certain terms and conditions to determine what will happen with the money. Wills have to go through probate which is the court administration process for administering the Will. What happens when somebody passes away with a Will, the executor can’t do anything until the judge allows him and it becomes a court process. The Will is then mailed to the beneficiaries, with details of what they’re allowed to have. This can take weeks or months to find out what the deceased owned. The probate process is a time consuming task and also expensive, and we advise to avoid it if possible. This is exactly why we suggest using a trust.
Divorce is a Financial Threat
Rather than giving the money to your kids outright, the money is held in a separate trust until they reach the age which you determine is suitable. This is known as an underage trust and it protects the kids from their own poor decisions as a youngster. When your child reaches the age you have agreed upon which is often 25 or 30, for them to receive their inheritance, the trust then terminates. However, you need to consider protecting your kids from the next potential issue and the biggest financial threat for adults in their 20’s and 30’s, which is divorce.
What I like to do is for my kid to become a trustee on the trust. We’re not distributing the money so it doesn’t become a marital asset. It would also be protected from the general creditors, divorces and lawsuits. The money is held in trust for my kid until they turn 25 and can get control of the trust. This is effective estate planning and is more important than having a simple Will. It often happens that most people just do beneficiary designations on their life insurance policies. When the parent passes away, the kids get their money on their 21st birthday. This is not a good idea and it is better for that money to be in a trust. Having a good estate plan in place helps you to do your job as a parent and raise good people.
Register for our Webinar for Young Families
This is all possible when you start with education because educated decisions are better decisions. That’s why we offer a free webinar called “Five Secrets to Protect your family”. You can find it sechlerlawfirm.com/workshops. We teach you a lot of the things you need to know about how trusts work. We also share other important information you need to know. Join us!
