Guarding children’s future: Estate planning for parents
No parent likes to think about their children growing up without them. But parents can gain peace of mind from knowing their children will be well provided for in any circumstance.
That’s why it’s important for new parents to draw testamentary documents detailing their plans and wishes for their children.
Choosing a guardian
Joel Arnason, a partner at Renquist & Arnason PLLP, suggests parents start by choosing a guardian for their child.
He says most parents will choose two or three people in case their first choice is not able to take custody of the children.
Arnason says it is essential to speak to these individuals ahead of time to make sure they are willing to take on that responsibility.
If the designated guardians refuse to take custody of the children, Arnason says the courts will have to find someone else to take them in. In rare cases, this can lead to children becoming wards of the state.
Having a conversation with the designated guardians before including them in the will is a simple way to help avoid this kind of situation.
He also suggests considering whether the person will be physically able to care for the child long term. For example, a grandparent might seem like the perfect choice when the child is an infant and the grandparent is newly retired, but it is important to consider what the situation could be when the child is a teen.
Life insurance and inheritance
Making sure children are financially provided for is another essential part of estate planning as a parent.
Ward Johnson, a partner at The Johnson Law Firm P.C., suggests that people who are not wealthy carry a large amount of life insurance while their kids are growing up. This way, their needs and education can be provided.
Arnason says young parents often have few assets, so being specific about how life insurance money is to be spent is an important step.
He says there are unlimited ways to set that up, but the most common is to establish a trust fund with parameters on how the child can access it. He says without establishing these parameters, the full amount of the inheritance will be granted to the child on his or her 18th birthday.
As many 18-year-olds are still in high school, most parents would prefer to have the money held longer, or parceled out slowly over several years.
Sometimes parents will build in incentives to finish college, he says. For example, they might put in a provision stating a third of the money will be granted at college graduation, another third at 25 and the remaining portion at 30.
If the child doesn’t graduate college, half will be granted at 25 and the other half at 30.
Other parents choose to grant part of the money when their child gets married, but Arnason warns this might cause the child to want to get married before they are ready.
When children are grown, Arnason says wills become slightly less complex. Johnson suggests reevaluating and possibly reducing life insurance when children are no longer dependent. This is also a good time to review the will and make changes. Continued from Page 4
He also recommends making changes throughout later life to reflect when parts of the inheritance have been given to specific descendants.
Generally, adult children can be entrusted with the entire value of their inheritance or insurance, so a trust is not needed.
The key, he says, is to include them in the planning process and explain the reasoning behind decisions.
Often parents of adult children will exclude their kids and not talk about the planning process, but this can be a mistake.
Ultimately, a person can do whatever they want with their will, but when descendants are not prepared it can lead to problems and challenges, he says.
For example, he says a parent might want to leave more to one child than the rest of the children, because they are less capable of caring for themselves or the other children have already received a portion of the inheritance. He says it is better to discuss this with the children before they are blindsided with it when the will is read.
He also says it’s a good idea to include particular items or family heirlooms in the will. This can prevent some of the hard feelings that arise between siblings over who will receive which belongings.
Ultimately, he says, someone’s feelings will probably be hurt no matter how much preparation is made, but including adult children in the process and explaining decisions beforehand can minimize these issues in the long run.
Choosing a personal representative or executer is another important step in forming a will, especially if there are descendants involved. Often, the oldest child is the automatic executer, but Arnason says this is not always the best option.
The personal representative oversees that the parents’ wishes are carried out. They manage the estate and see that it is divided according to the will.
He suggests parents choose the child who is best at keeping peace in the family, whose decisions will be respected and who will not be biased toward his own interests.
It could also be a good idea to select a third party as a personal representative. He says many banks offer this service.
Process and cost
When parents have decided on these most important aspects, they must go through the process of having a legal document drawn up to reflect their wishes.
The document must be witnessed and signed and it must state that the testator is of sound mind at the time it was created. A court must be able to verify its validity.
All of this can be taken care of with help from a lawyer. A lawyer can also help navigate the details of the document.
The more complex the document is, the more time the lawyer will have to put into it; that means, a more complex will is more expensive than a standard will.
A simple will usually costs a few hundred dollars, according to Johnson, but a more complex will that includes specific provisions and trusts can cost up to $1,000 or more. Costs vary widely from lawyer to lawyer, Arnason says.