Do you have a special needs child? If your child is receiving government benefits, or perhaps is more than likely going to need government benefits later in life, you may unintentionally divest your child of such benefits if they inherit from you.
If so, estate planning is critical to make sure your child is taken care of in the event you pass away. Who will manage the money for that child? There are many questions that need to be asked and answered. Will you inadvertently divest them of any government benefits they are receiving or may be entitled to? You can create a Special Needs Trust that can hold the money for your child. Such a trust is not counted against your child when it comes to qualifying for government benefits. Special Needs Trusts can be used to provide for your child for things the government doesn't provide. These trusts need to meet specific requirement to pass muster with the government. A Special Needs Trust can also be the recipient of funds from other family members (ex spouse, grandparents, etc) instead of having them gift directly to your child which may cause them to lose their benefits.
Be careful when naming minors as beneficiaries of life insurance policies. Click here to see a quick 5 minute white-board discussion regarding naming minors as beneficiaries of your life insurance policy.
Naming guardians for your children can be difficult. Here are some thoughts on how to pick guardians for your kids. School has started. It’s important to provide children with a strong education. However, have you taken the time to legally protect your kids?
Nearly 70% of parents have NOT named Guardians for their minor children. If you have minor children, it is very important to select guardians for those children in the event you can no longer be there for them – either by death or incapacity of some sort. Naming Guardians for your children is only part of estate planning. Other important components include Living Trusts, Wills, Powers of Attorney, Health Care Directives, etc. Some people find this process uncomfortable, but this is the time to get empowered and take action to protect your kids!
What if you can no longer care for your children due to death or incapacity? If you can’t take care of your minor children, the court must appoint legal guardians for those children. Anyone who wants the job can petition the court. Your kids can easily end up with people who probably have no business raising your kids or don’t share your same values. However, by legally naming guardians for your children beforehand, the court will appoint the people that you’ve chosen. Wouldn’t you rather choose who gets to raise your kids? Wouldn’t you rather lay down the rules and guidelines for your children’s guardians?
How to choose a guardian for your kids?
1) First, don’t worry about hurting anyone’s feelings! Some people don’t name guardians because they are afraid of hurting someone’s feelings. For example, if they don’t name a certain family member, they fear that family member will be upset. These are your kids we are talking about! Hurting someone’s feelings should be of secondary concern. Second, that family member usually won’t know they haven’t been named unless you choose to tell them.
2) Now list all the people you can imagine raising your kids. Of course, no one will be as good as you! By the same token, generally speaking NO ONE is perfect. Therefore, don’t let that fact keep you from creating this important legal document! Some parents get stuck on this part, and as a result, end up doing nothing! So go ahead and list about 3 to 5 people or couples. If you can’t think of anyone, then work backwards – try making a list of people who should NEVER raise your children….then start listing people who are better than those people you’ve just listed. Remember, you don’t want to leave this decision to a court.
3) At this point, start listing the most important things to you when it comes to raising your kids – is it the location where they are raised, the age of those raising your kids, their parenting style, their religion, marital status, their relationship to your kids, etc? List about 3 issues/values that are most important to you.
4) Take your first list of people, and your second list, and now match them up. You will start to see a natural hierarchy. There should always be at least three guardians listed. Make sure to discuss your nominations with your guardians. You want to make sure they are willing to serve. Remind them they are not obligated to serve in the event they cannot serve or don’t wish to serve because circumstances change. If you wish, we can also send them a short letter explaining what it means to be named guardian.
Some common mistakes people make when naming guardians for their children.
1) Naming couples to serve as guardians. Ask yourself WHICH person from the couple you REALLY want raising your kids. Divorce rates are still high in this country, and what if one person in the couple passes away? It’s usually better to name the one person you really want rather than naming the couple.
2) Parents don’t name enough alternate guardians. The people you choose many not be able to serve for one reason or another. You need backups!
3) Parents will consider the financial resources of their guardians. Your guardians are not responsible for providing financially for your kids. They should be chosen on their ability to take the best care of your kids. Providing for your kids via a living trust and/or life insurance, etc., is your responsibility. That is part of a larger estate plan, and you may wish to consider it. If you are not ready to put together a complete estate plan, that is fine. At least you’ve taken an important first step by naming guardians for your kids.
4) The parents don’t consider the financial provisions of taking care of their kids (i.e., how their assets are going to transfer to their children). Are they getting everything at age 18? What about protecting your kids from divorces or creditors? Who will manage the money for them? Again, this is part of the larger estate planning process. We can certainly discuss the options available, but at least you can get started by naming guardians for your kids.
5) People don’t exclude people they know they DON’T want caring for your kids. There may be people in your life that you definitely DON’T want raising your kids. You can indeed “anti-nominate” people as well. You want to make your wishes made clear so your children have the best care possible. Choosing guardians for your children can be a tough process. However, doing nothing at all will more than likely be tougher on your kids!
Should you name your children as beneficiaries of your life insurance policies? Probably not!
Many people don’t give too much thought when choosing someone to be the beneficiary of a life insurance policy. Most people name their spouse as their primary beneficiary. Then, when it comes to contingent beneficiaries, many people either don’t list anyone at all, or in some cases, they list their minor children as the beneficiaries. It all seems so simple and straight-forward.
One of the biggest mistakes you can make is naming a minor as beneficiary. At first, it seems like a great idea. After all, you want your kids to get the insurance money…don’t you? However, what you may not realize is that doing so can create legal and practical problems. For example, I have a $1 million life insurance policy. However, my son is 11 years old, and my daughter is 9 years old. If my wife and I pass away in a common accident, do you really think our life insurance company is going to write a check out to my kids? Even if the insurance company would write checks to minors, do I really want my kids getting $500,000 each at such a young age with no strings attached?
So what is going to happen? The life insurance company will typically offer two choices. First, the child can wait till he/she is 18 years of age (believe it or not, that is considered adulthood) and then get a check for the full amount. Getting large amounts of money at such young ages can easily lead to a squandering of those assets. Even if your child is “responsible,” he or she may be subjected to pressures from their peers. Think about it. Do you want your kids getting such large sums of money at such a young age? Second, they could pay the money to whoever is designated as the children’s guardian. Have you named a guardian for your kids yet? Even so, that is a court process that takes time and money, and their money will still be available to them once they turns 18 years old.
If you have minors as beneficiaries of your life insurance policies, complications are bound to arise. Usually, getting a life insurance policy is supposed to provide your surviving loved ones with financial security and peace of mind. However, if you don’t give much thought to the beneficiary designations, you may be creating more problems than you have solved.
To help solve this problem, a living trust can be set up to receive the life insurance proceeds. In other words, your living trust becomes the beneficiary of your life insurance policy. That way, no one has to go to court to get the life insurance money, and the proceeds can be paid out much quicker, thereby making the money available to the family without delay. The advantage is that YOU establish the trust, YOU select the trustees, and YOU outline the terms under which assets can be used and distributed from the trust. This solution often works in the best interests of the minor children and those of other dependents, such as a surviving spouse. Therefore, by doing so, you’ve obviated the need for court intervention and the money can be managed responsibly for our children.
A living trust is not a panacea but can be appropriate for many people. Work with your attorney to see if your family could benefit from establishing a trust as part of a broader estate plan.