Author Archives: Marc Garlett

Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 1

 

USA, New Jersey, Jersey City, Women chatting on sofa

If a friend or family member has asked you to serve as trustee for their trust upon their death, you should feel honored—this means they consider you among the most honest, reliable, and responsible people they know.

However, being a trustee is not only a great honor, it’s also a major responsibility. The job can entail a wide array of complex duties, and you’re both ethically and legally required to effectively execute those functions or face significant liability. Given this, agreeing to serve as trustee is a decision that shouldn’t be made lightly, and you should thoroughly understand exactly what the role requires before giving your answer.

Of course, a trustee’s responsibility can vary enormously depending on the size of the estate, the type of trust involved, and the trust’s specific terms and instructions. But every trust comes with a few core requirements, and here I’ll highlight some of the key responsibilities.

First off, serving as trustee does NOT require you to be an expert in law, finance, taxes, or any other field related to trust administration. In fact, it’s almost always a good idea for a trustee to seek assistance from professionals in these fields, and funding to pay for such services should already be set aside for this in the trust.

Adhere to the trust’s terms
Every trust is unique, and a trustee’s obligations and powers depend largely on what the trust allows for, so you should first carefully review the trust’s terms. The trust document outlines all the specific duties you’ll be required to fulfill as well as the appropriate timelines and discretion you’ll have for fulfilling these tasks.

Some trusts are relatively straightforward, with few assets and beneficiaries, so the entire job can be completed within a few weeks or months. Others, especially those containing numerous assets and minor-aged beneficiaries, can take decades to completely fulfill.

Act in the best interests of the beneficiaries
Trustees have a fiduciary duty to act in the best interest of the named beneficiaries at all times, and they must not use their position for personal gain. Moreover, they cannot commingle their own funds and assets with those of the trust, nor may they profit from the position beyond the fees set aside to pay for the trusteeship.

If the trust involves multiple beneficiaries, the trustee must balance any competing interests between the various beneficiaries in an impartial and objective manner for the benefit of them all. In some cases, grantors try to prevent conflicts between beneficiaries by including very specific instructions about how and when assets should be distributed, and if so, you must follow these directions exactly as spelled out.

However, some trusts leave asset distribution decisions up to the trustee’s discretion. If so, when deciding how to make distributions, the trustee must carefully evaluate each beneficiary’s current needs, future needs, other sources of income, as well as the potential impact the distribution might have on the other beneficiaries. Such duties should be taken very seriously, as beneficiaries can take legal action against trustees if they can prove he or she violated a fiduciary duty and/or mismanaged the trust.

Invest trust assets prudently
Many trusts contain interest-bearing securities and other investment vehicles. If so, the trustee is responsible not only for protecting and managing these assets, they’re also obligated to make them productive—which typically means selling and/or investing assets to generate income.

In doing so, the trustee must exercise reasonable care, skill, and caution when investing trust assets, otherwise known as the “prudent investor” rule. The trustee should always consider the specific purposes, terms, distribution requirements, and other aspects of the trust when meeting this standard.

Unless specifically spelled out in the trust terms, it will be up to the trustee’s discretion to determine the investment strategies that are best suited for the trust’s goals and beneficiaries. But trustees should not invest trust assets in overly speculative or high-risk stocks and/or other investment vehicles. A financial adv

 If a friend or family member has asked you to serve as trustee for their trust upon their death, you should feel honored—this means they consider you among the most honest, reliable, and responsible people they know.

However, being a trustee is not only a great honor, it’s also a major responsibility. The job can entail a wide array of complex duties, and you’re both ethically and legally required to effectively execute those functions or face significant liability. Given this, agreeing to serve as trustee is a decision that shouldn’t be made lightly, and you should thoroughly understand exactly what the role requires before giving your answer.

Of course, a trustee’s responsibility can vary enormously depending on the size of the estate, the type of trust involved, and the trust’s specific terms and instructions. But every trust comes with a few core requirements, and here I’ll highlight some of the key responsibilities.

First off, serving as trustee does NOT require you to be an expert in law, finance, taxes, or any other field related to trust administration. In fact, it’s almost always a good idea for a trustee to seek assistance from professionals in these fields, and funding to pay for such services should already be set aside for this in the trust.

Adhere to the trust’s terms
Every trust is unique, and a trustee’s obligations and powers depend largely on what the trust allows for, so you should first carefully review the trust’s terms. The trust document outlines all the specific duties you’ll be required to fulfill as well as the appropriate timelines and discretion you’ll have for fulfilling these tasks.

Some trusts are relatively straightforward, with few assets and beneficiaries, so the entire job can be completed within a few weeks or months. Others, especially those containing numerous assets and minor-aged beneficiaries, can take decades to completely fulfill.

Act in the best interests of the beneficiaries
Trustees have a fiduciary duty to act in the best interest of the named beneficiaries at all times, and they must not use their position for personal gain. Moreover, they cannot commingle their own funds and assets with those of the trust, nor may they profit from the position beyond the fees set aside to pay for the trusteeship.

If the trust involves multiple beneficiaries, the trustee must balance any competing interests between the various beneficiaries in an impartial and objective manner for the benefit of them all. In some cases, grantors try to prevent conflicts between beneficiaries by including very specific instructions about how and when assets should be distributed, and if so, you must follow these directions exactly as spelled out.

However, some trusts leave asset distribution decisions up to the trustee’s discretion. If so, when deciding how to make distributions, the trustee must carefully evaluate each beneficiary’s current needs, future needs, other sources of income, as well as the potential impact the distribution might have on the other beneficiaries. Such duties should be taken very seriously, as beneficiaries can take legal action against trustees if they can prove he or she violated a fiduciary duty and/or mismanaged the trust.

Invest trust assets prudently
Many trusts contain interest-bearing securities and other investment vehicles. If so, the trustee is responsible not only for protecting and managing these assets, they’re also obligated to make them productive—which typically means selling and/or investing assets to generate income.

In doing so, the trustee must exercise reasonable care, skill, and caution when investing trust assets, otherwise known as the “prudent investor” rule. The trustee should always consider the specific purposes, terms, distribution requirements, and other aspects of the trust when meeting this standard.

Unless specifically spelled out in the trust terms, it will be up to the trustee’s discretion to determine the investment strategies that are best suited for the trust’s goals and beneficiaries. But trustees should not invest trust assets in overly speculative or high-risk stocks and/or other investment vehicles. A financial advisor familiar with trusts can help guide the trustee in following sound and reasonable investment strategies.

Next week, I’ll continue with part two in this series explaining the scope of powers and duties that come with serving as trustee.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Signature Blogs

What is a Charitable Remainder Trust?

People Discussion Meeting Give Help Donate Charity Concept

 

 

If you have highly appreciated assets like stock and real estate you want to sell, it may make sense to use a charitable remainder trust (CRT) to avoid income and estate taxes—all while creating a lifetime income stream for yourself or your family AND supporting your favorite charity.

A CRT is a “split-interest” trust, meaning it provides financial benefits to both the charity and a non-charitable beneficiary. With CRTs, the non-charitable beneficiary—you, your child, spouse, or another heir—receives annual income from the trust, and whatever assets “remain” at the end of the donor’s lifetime (or a fixed period up to 20 years), pass to the named charity(ties).

How a CRT works
You work with us to set up a CRT by naming a trustee, an income beneficiary, and a charitable beneficiary. The trustee will manage the trust’s assets to produce income that’s paid to you or another beneficiary.

The trustee can be yourself, a charity, another person, or a third-party entity. However, the trustee is not only responsible for seeing that your wishes are carried out properly, but also for staying compliant with complex state and federal laws, so be sure the trustee is well familiar with trust administration.

With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells it. Normally, this would generate capital gains taxes, but instead, you get a charitable deduction for the donation and face no capital gains when the assets are sold.

Once the appreciated assets are sold, the proceeds (which haven’t been taxed) are invested to produce income. As long as it remains in the trust, the income isn’t subject to taxes, so you’re earning even more on pre-tax dollars.

Income options
You have two options for how the trust income is paid out. You can receive an annual fixed payment using a “charitable remainder annuity trust (CRAT).” With this option, your income will not change, regardless of the trust’s investment performance.

Or you can be paid a fixed percentage of the trust’s assets using a “charitable remainder unitrust (CRUT),” whereby the payouts fluctuate depending on the trust’s investment performance and value.

 Tax benefits

Right off the bat, as mentioned above, you can take an income tax deduction within the year the trust was created for the value of your donation—limited to 30% of adjusted gross income. You can carry over any excess into subsequent tax returns for up to five years.

And again, profits from appreciated assets sold by the trustee aren’t subject to capital gains taxes while they’re in the trust. Plus, when the trust assets finally pass to the charity, that donation won’t be subject to estate taxes.

You will pay income tax on income from the CRT at the time it’s distributed. Whether that tax is capital gains or ordinary income depends on where the income came from—distributions of principal are tax free.

 If you have highly appreciated assets you’d like to sell while minimizing tax impact, maximizing income, and benefiting charity, give us a call, so we can find the best planning options for you.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Signature Blogs

Appoint a Guardian to Keep Your Kids In Safe Hands At All Times

child and woman 91024

 

 

 

 

 

 

Putting politics aside, I imagine every parent who has watched the news lately has been troubled over what’s happening to families at the US-Mexican border. As you likely know, more than 2,300 children have been separated from their parents at the border recently.

Again, regardless of your political views, I’m sure you don’t relish the thought of children being taken from their parents. What’s more, perhaps these events have got you thinking about how it would be for your children to be taken into the custody of strangers. And if not, let this be the moment you willingly feel that fear on a personal level and decide to ensure your child’s well-being and care by only the people you want no matter what happens.

It can happen to your family
Even though most people think that something like that could never happen to their family, they’re just plain wrong. While your kids almost certainly won’t be taken into custody by U.S. border agents, your children could be taken into the care of strangers if something happens to you—even if your family or friends are on the scene.

Understand the risk
While it may seem like a long shot, the consequences are serious enough that you must consider the real possibility of what could happen and ensure you’ve taken right actions to protect your loved ones. Let’s say you and your spouse have gone out to dinner together and left the kids with a babysitter. But on the way home, you’re in a car accident. The police will get to your house, find your children home with a babysitter, and have no choice but to take your kids into the care of the authorities (strangers) until they can figure out what to do.

This is the case even if you have friends or family living nearby. If you haven’t left proper legal documentation, the authorities may have no option but to call child protective services—that is, unless you’ve legally given them an alternative.

Know your options and your responsibility
The sad thing is, this all can be completely (and very easily) prevented. However, to ensure your children are never taken into the care of strangers you must take action now. Please do not leave this to chance. You have the right – and the responsibility – to guarantee your children are never taken into the care of strangers.

And if you think you’ve already done the right thing because you’ve “asked” someone to look after your children if something happens to you, or you have a will that names legal guardians for your children, think again. We’ve found that in most cases, even parents who worked with a lawyer to name legal guardians have made at least one of six common mistakes that leave their children at risk.

These mistakes are made because unfortunately, most lawyers do not know what’s necessary for planning and ensuring the well-being and care of minor children.

Here’s how to get started
If you’ve already created a will, we can help you identify whether you’ve made any of the six common mistakes that could leave your children at risk. If you have not yet taken any action, we can help you take the first steps and make the very best decisions for the people you love.

Whatever your situation, you should act now to make certain your children are never taken into the care of strangers. Call us and mention this article to receive a complimentary consultation.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

Protecting the Financial Future of Your Child with Special Needs

special_needs_child

It always surprises me to hear parents who have a child with special needs tell me that they were not aware of what they needed to do to ensure the future well-being and care of their child is properly handled. Or sometimes, they tell me they didn’t know they needed to do anything at all.

If that’s you, and you have a child with special needs at home, this article is for you. And if you have friends or family who have a child with special needs, please share this article with them.

Every parent who has a child with special needs MUST understand what’s needed to provide for the emotional, physical, and financial needs of their child, if and when something happens to them.

Naming Guardians
Of course, the first and most critical step in ensuring the well-being and care of your child with special needs’ future is to name both short and long-term legal guardians to take custody of and care of your child, in the event of your death or incapacity. And as you well know, this responsibility doesn’t end at age 18, if your child will not grow into an adult who can independently care for him or herself.

While we understand this lifetime responsibility probably feels overwhelming, we’ve been told repeatedly by parents that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief.

Beyond naming a guardian, you’ll also need to provide financial resources to allow your child to live out his or her life in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits.

Special Needs Trusts
Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child without affecting his or her eligibility for public healthcare and income assistance benefits.

However, the rules for such trusts are complicated and can vary greatly between different states, so a comprehensive special needs trust needs to be properly structured and appropriate for your child’s specific situation.

There are two ways to set up a special needs trust. In certain situations, we build it into your revocable living trust, and it will arise, or spring up, upon your death. From there, assets that are held in your revocable living trust will be used to fund your child’s special needs trust.

In other cases, we can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child now. This makes sense if you have parents or other relatives who want to give your child with special needs gifts sooner rather than later.

Once the trust is funded, it’s the trustee’s job to use its funds to support the beneficiary without jeopardizing eligibility for government benefits. To handle this properly, the trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the law.  The trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs.

If you need help creating a special needs trust for your child, contact us. We can develop a sustainable living plan for your child with special needs that will provide her or him with the financial means they need to live a full life, while preserving their access to government benefits.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

Now We’re Cooking!

Rarotonga

Rarotonga

Aitutaki

Aitutaki

Cade, Ella and me wading across the Aitutaki lagoon

Cade, Ella and me wading across the Aitutaki lagoon

My family and I spent last week on Rarotonga and Aitutaki, two of the Cook Islands – the Cook Islands is a small nation made up of 15 tiny islands in the middle of the South Pacific Ocean. It’s a geographical fact that there are few places on earth more remote. And while it’s more opinion than fact, I can’t imagine many (perhaps, any) places on the planet are more beautiful.

Yan and I love to travel and though we’ve been to so many places we’ve adored, when given the opportunity to go back to someplace we’ve already been or to go to someplace new, we almost always choose the latter. And now that Cade and Ella are old enough to appreciate the more exotic locales, we want to take them to as many new places as we can. So when Yan found $400 round trip, direct flights to the Cook Islands, we booked the trip without a second thought!

“Kia Orana” is the Maori (the language of the original Cook Islanders) greeting on the islands. Its literal translation is “May you live long.” In my conversations with the Cook Islanders I asked a lot of questions about this greeting and really dug in deep. I was told that is both a blessing and a wish. I saw Cook Islanders passing this on to everyone they met from tourists, to friends, to family. I was told it communicates the essence of the islands’ spirit and goes far beyond a simple greeting. It directly ties into the core cultural value of mana – which literally means power and influence, but constructively means so much more – which is a family’s sacred duty to collect and pass down to the next generations.

Wow. That sounds a lot like legacy to me. And it has nothing to do with material wealth. It’s all about spirit and family and values and stories and experiences. And the power of legacy lives strong in the people of the Cook Islands. It’s all about empowering families. Not necessarily political power or other forms of power over others, but rather, the power within. It’s the kind of power which connects one generation to the next and makes each successive generation stronger.

Our experience in the Cook Islands helped expose our kids to travel in general and two of the most amazing locales our world has to offer. Part of it is about introducing them to new cultures and people, different from us yet so similar on a basic human level. In the Cook Islands we met many native islanders, scores of Kiwis, some Aussies, and a smattering of Asians and Europeans. We saw almost no other Americans. Our kids played and made friends with other kids from all over the world and gained in their appreciation of the big, diverse planet they live on.

We made memories as a family in one of the earth’s truly special areas. Those memories and that shared experience have now become part of the legacy Yan and I will pass on to Cade and Ella. But what an unexpected treat to learn so much about how another amazing culture views legacy. It is proof that legacy really matters to all of us as human beings, no matter our ethnicity or national origin. That’s pretty cool.

Marc Garlett 91024

What You Should Know About Guardianship—In Case A Parent or Loved One Becomes Incapacitated

adult_child_talking_to_mom_on_couch 91024Whether through illness, injury, or other means, anyone can require a guardian if they become mentally incapacitated. In such cases, if there is no estate planning in place (or insufficient planning) to keep family or other loved ones out of court, a guardianship or conservatorship must be established via court process.

Obtaining guardianship can be an extraordinarily challenging and expensive process. It begins with filing a petition in court for guardianship and requesting the court declare the incapacitated person incompetent. In some cases, these types of filings are made “ex parte”, or in secret, and a guardianship can be established before family or close friends even know what’s happening. In other cases, such a filing can result in a heated dispute between family members and/or friends, who may claim they’d be better suited for the role. Given this, things can get quite costly very quickly.

Of course, this assumes these matters haven’t already been decided through proper and up-to-date estate planning, including a valid durable power of attorney and advance health care directives, which are the best methods for ensuring this massive responsibility is handled as effectively as possible. Sadly, most people don’t think of the costly possibility of incapacity and therefore leave their families at risk.

If you do have a loved one who needs a guardian, here are some of the things you’ll need to know:

Who can be appointed as guardian?
Unless specified in a valid legal document, any family member or other interested person can petition for guardianship—even a close friend can do it if they prove they’re best suited for the position. That said, most courts give preference to the ward’s spouse or other close family members. In some cases, the guardian is required to post a bond, which typically requires good credit and some level of deposit to be held in the event of the guardian’s wrongdoing. This bond requirement often disqualifies many friends and family, who either don’t have good credit or the resources to post a bond.

If a relative or friend is not willing—or capable—of serving, the court will appoint a professional guardian or public guardian. This is one of the ways an estate can be drained extremely quickly. If you want to hear more about how this can happen, read this terrifying article about the way public and professional guardians are stealing from our elders.

What are a guardian’s responsibilities?
Depending on the extent of the ward’s mental capacity, a court-appointed guardian can be given near complete control over a person’s life and finances. Some of the most common duties include:

  • Paying the ward’s bills
  • Determining where they live
  • Monitoring their residence and living conditions
  • Providing consent for medical treatments
  • Deciding how their finances are handled, including how their assets are invested and if any assets should be liquidated
  • Managing real estate and other tangible personal property
  • Keeping detailed records of all their expenditures and other financial transactions
  • Making end-of-life and other palliative-care decisions
  • Reporting to the court about the ward’s status at least annually

What’s more, the court often requires detailed status reports, such as financial accounting, at regular intervals or whenever important decisions are made, such as the sale of assets.

Are guardians compensated?
Yes, guardians are entitled to reasonable compensation for their services based on the ward’s financial ability to pay. The appointed guardian is paid directly from the ward’s estate. In most cases, the compensation must be approved by the court ahead of time, and the guardian must carefully account for all of their services, the time spent on tasks on behalf of the ward, and any associated out-of-pocket expenses.

Given the huge level of responsibility and loss of control that comes with guardianship, the best course of action would be to get proper and updated estate planning in place ahead of time to ensure that if you or anyone you love becomes incapacitated, you can stay out of the court process altogether if possible.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

Safeguard Your Cryptocurrency Assets With Estate Planning

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One of the biggest appeals of cryptocurrency, such as Bitcoin, is that it is decentralized, unregulated, and anonymous. There are no financial institutions controlling it, and unless you tell someone you own digital currency, it remains a secret.

When it comes to estate planning, however, that kind of secrecy can be disastrous. In fact, without the appropriate planning protections in place, all your crypto wealth will likely disappear the moment you die or become incapacitated, leaving your family with absolutely no way to recover it.

Indeed, we’re facing a potential crisis whereby millions—perhaps billions—of dollars’ worth of family wealth could potentially vanish into thin air unless cryptocurrency owners take action to protect their digital assets with estate planning. Fortunately, putting the appropriate safeguards in place is a fairly simple process for an attorney experienced with cryptocurrency.

The first step in securing your crypto assets is to let your heirs know you own it. This can be done by including your digital currency in your asset inventory (such as the one we prepare for our clients) listing all your assets and liabilities. Along with the amount of cryptocurrency you own, you should also include detailed instructions about where it’s located and how to find the instructions to access it. But you want those instructions to be kept in a secure location because anyone who has them can take your cryptocurrency.

Even if your heirs know you own cryptocurrency, they won’t be able to access it unless they know the encrypted passcodes needed to unlock your account. Indeed, there are numerous stories of crypto owners losing their own passcodes and then being so desperate to recover or remember them that they dug through trash cans and even hired hypnotists.

The best way to secure your passcodes is by storing them in a digital wallet. The safest option is a “cold” wallet, or one that is not connected to the internet and thus cannot be hacked. Cold wallets include USB drives as well as “paper” wallets, which are simply the passcodes printed on paper—and ideally stored in a fireproof safe or safe deposit box.

Since digital currency is such a recent phenomenon, not all estate planning attorneys are familiar with it.  And although I don’t advocate any of my clients invest in it – that is their own personal choice – I have helped many safeguard their digital wealth just as effectively as all their other assets.

Why? Because at my firm we don’t just draft documents; we ensure clients make informed and empowered decisions about life and death, for themselves and the people they love. After all, that’s what estate planning should really be all about.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

I Don’t Have Kids, So Why Do I Need Estate Planning? Part 2

as they sit in a meadow looking at the scenery

as they sit in a meadow looking at the scenery

Last week, I shared the first part of a series on the importance of estate planning for those without children. If you haven’t read it yet, you can do so here. In part two, I’ll discuss additional risks involved for those who forego estate planning.

Someone will have power over your health care
Estate planning isn’t just about passing on your assets when you die. In fact, some of the most critical  parts of planning have nothing to do with your money at all, but are aimed at protecting you while you’re still very much alive.

Advance planning allows you to name the person you want to make healthcare decisions for you if you’re incapacitated and unable to make decisions yourself.

For example, if you’re temporarily unconscious following a car accident and unable to give doctors permission to perform a potentially risky medical treatment, it’s not always clear who’ll be asked to make that decision for you.

In that event the courts will be called in to appoint someone to make those critical decisions. And that person may not be whom you would have chosen, and/or they may make decisions contrary to what you would want.

So even if you don’t have kids, you need to do estate planning in order to name health care decisions-makers for yourself and provide instructions on how you want decisions made.

Someone will get power over your finances

As with health-care decisions, if you become incapacitated and haven’t legally named someone to handle your finances while you’re unable to do so, the court will pick someone for you. The way to avoid this is by naming someone you trust to hold power of attorney for you in the event of your incapacity.

Durable power of attorney is an estate planning tool that gives the person you choose immediate authority to manage your financial matters if you’re incapacitated. This agent will have a broad range of powers to handle things like paying your bills and taxes, running your business, collecting your Social Security benefits, selling your home, as well as managing your banking and investment accounts.

Without a signed durable power of attorney, your family and friends will have to go to court to get access to your finances, which not only takes time, but it could lead to mismanagement and even the loss of your assets should the court grant this authority to the wrong person.

Furthermore, the person you name doesn’t have to be a lawyer or financial professional—it can be anybody you choose, including both family and friends. The most important aspect of your choice is selecting someone who’s imminently trustworthy, since they will have nearly complete control over your estate.

Given all of these potential risks, it would be foolhardy – whether you have children or not – to ignore or put off these basic estate-planning strategies. Identifying the right planning tools is easy to do, and begins with a Family Estate Planning Session, where we can consider everything you own and everyone you love, and guide you to make informed, educated, empowered choices for yourself and your loved ones.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

I Don’t Have Kids, So Why Do I Need Estate Planning? Part 1

single-guy 91024It’s a common misconception to think that if you don’t have children, you don’t need to worry about estate planning. But the fact is, it can be even MORE important to do estate planning if you have no children.

Some of the common thoughts behind this mistaken belief may take one of these forms:

“If I die, everything will pass to my spouse anyway, so why bother?”

“I’m single with little wealth, so who cares who gets my few meager assets?”

“Estate planning is an expensive hassle and it doesn’t even benefit me because I’ll be dead, so I’m better off letting a judge sort things out.”

This kind of thinking ignores several basic facts about both estate planning and life in general. Regardless of your marital status, if you don’t have children, you face potential estate-planning complications which those with children do not. And this is true whether you’re wealthy or have very limited assets.

So even if you’re childless, consider these inconvenient truths before you decide to forego estate planning.

Whether you’re rich, poor, or somewhere in between, in the event of your death everything you own will be passed on to someone. Without a will or trust, your assets will go through probate, where a judge and state law will decide who gets everything you own. In the event no family steps forward, your assets will become the property of the state.

Why give the government everything you worked your life to build? And even if you have little financial wealth, you undoubtedly own a few sentimental items (including pets) you’d like to pass to a close friend or favorite charity.

However, it’s rare for someone to die without any family members stepping forward. It’s far more likely that some relative you haven’t spoken with in years will come out of the woodwork to stake a claim. Without a will or trust, state laws establish which family member has the priority inheritance. If you’re unmarried with no children, this hierarchy typically puts parents first, then siblings, then more distant relatives like nieces, nephews, uncles, aunts, and cousins.

Depending on your family, this could have a potentially negative outcome. For instance, what if your closest living relative is your estranged brother with serious addiction issues? Or what if your assets are passed on to a niece who’s still a child and likely to squander the inheritance?

And if your estate does contain significant wealth and assets, this could lead to a costly and contentious court battle, with all your relatives (and their lawyers) fighting over your estate—which is exactly what’s happening with Prince’s family right now.

Finally, if you have a spouse and your assets are passed to him or her, there’s no guarantee they’ll live much longer than you. In the event of their death without a will or a trust, everything goes to his or her family, regardless of whether you like them or not.

Do you really want your spouse’s sister, brother, parents (or the new spouse he or she marries after you die) inheriting what you’ve worked so hard for? Maybe you do. Maybe you don’t. The point is, without any planning, you lose all control of what happens.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

How to Leave Your Life Insurance and Retirement Plan to Your Minor Children

PARENT-CHILD-CUSTODY-91024Your children are your pride and joy. It is no surprise that at some point or another, every parent likely becomes concerned about who will care for a minor child or children if one or both parents die or are incapacitated. From a financial perspective, many parents turn to life insurance in an effort to take care of their family in the event of death. While it is true that life insurance is a particularly helpful financial tool to protect your loved ones, it is just as important to consider how to leave the proceeds to your minor children. Beyond this, you should also consider how to incorporate your retirement money (IRAs and 401(k)s) into your overall estate plan.

Once you decide to purchase life insurance you will name a beneficiary of the death benefits.  You also name a beneficiary on your retirement accounts.  But, if you fail to have a system in place and your children are minors at the time they inherit these assets, the court will appoint a conservator to “watch over” a minor person’s money. This process requires attorneys’ fees, court proceedings, supervision from the court, and will generally limit investment options — all costs and delays that will not help your children, but rather cost them a significant percentage of their inheritance. Another downside? Whatever’s left when the child turns 18 will be handed over, without any guidance or boundaries. This can impact college financial aid opportunities as well as open a ready opportunity for irresponsible spending that most parents would never intend.

How To Leave Assets?

There are several ways in which you can structure your life insurance policies, retirement accounts, and overall estate plan to benefit your minor children in the most streamlined way possible.

First, instead of naming minor children as beneficiaries, use a children’s trust to manage and use the money for the benefit of your children. This lets you designate someone you think will manage the money well, rather than leaving it to the whims of the court.

Second, select and name a guardian to handle the day-to-day care for your children. This person can be different than the person managing in the money, which can sometimes work well depending on the amounts involved and the different skill sets needed to manage money versus raise children.

Third, if you have a living trust, make sure you have properly funded the trust and aligned your retirement assets with the plan. If you do not yet have a trust, consider the benefits of one over will-based planning.  Both types of plans will allow you to designate how much and when your children will receive the money, but a trust-based plan will allow you to do so without court involvement.

Benefits of a Trust

Generally, parents list a minor child as the secondary or contingent beneficiary on life insurance and retirement accounts after first naming the surviving spouse as a primary beneficiary. This may work, as long as everyone dies in the “right” order and at the “right” time. But, it’s a gamble, and providing structure through a trust for these inheritances is a vastly superior option. Unlike guardianship or custodian accounts, where the proceeds must be handed over once the minor(s) turns a certain age, you can specify at which age your child receives the proceeds. This allows you to specifically designate how the money is to be used, so it will be available for important life events, while protecting your children from reckless spending. Ultimately you have more control with a trust, and your customized plan will provide the best protection for your family.

If you have any questions about how to leave assets to your minor children — whether it is a life insurance policy, a retirement account, or any other asset — contact us today so we can help you explore the options available to your family, determine what tax implications will result, and advise you on the best structure that will protect your family’s needs.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024