Estate Planning to Protect Your Family
This year this article will follow a hypothetical couple through their lives to see what role estate planning had on their family. This hypothetical story is based on having worked with over 1500 families over the past thirteen years, but it is not based on a specific client.
I met John and Sue after assisting her parents and grandmother with their estate plans. Sue’s parents were very active, but they were approaching retirement. We had helped Sue’s grandmother qualify for nursing home Medicaid while she recuperated from a bad fall. It was pretty clear to me that neither John nor Sue came willingly, Sue’s parents were adamant that the young couple needed an estate plan and the couple eventually gave in when Sue’s parents gave them a monetary Christmas gift which was earmarked for their estate plan.
John and Sue were busy parents of two young children at the time. They seemed a bit distracted when we first started talking, but once we began discussing what could happen to the kids if neither of them could care for them for a period of time, they suddenly became very focused on our conversation. They had not realized that guardians for minor children should be named in two different documents because the document that controls how our decisions will be made during an incapacity (a durable power of attorney) is different than the document that controls these decisions after death (a last will and testament).
The couple explained that they would want Sue’s parents to take care of their children. John did not have a good childhood, so it was very important to them that John’s family never obtained custody of their children. They thought Sue’s brother would be the best person to manage the children’s inheritance because he was very good with money.
We then discussed how they would want their children’s inheritance to be managed and distributed for their benefit. They wanted the children to have what they needed, including a good education, but they were concerned about them being a financial burden to her parents who needed to save for retirement.
After we discussed a variety of scenarios, they felt most comfortable with the decision that should they both die, their estate would be divided evenly into a trust for each of their two children. Sue’s brother would manage the trusts for each child’s health, education, maintenance, and support.
Further, they wanted the children to eventually have access to their trusts, but with some oversight by Sue’s brother (the trustee) while they were young adults. They decided each child would have the right to withdraw one-third of their trust at each of the ages of 25, 30, and 35 years old. The children could even choose to just let the money stay in the trusts if they did not need the distribution as they reached each of those ages.
Although they initially thought estate planning would be depressing and a waste of time given their good health, John and Sue realized that some of these concerns had been in the back of their minds for quite some time, so they were very relieved. As they left the office, they joked their children would be adults before we knew it and then John and Sue would return to our office to remove the guardian provisions and to reevaluate how to distribute the inheritance.
This story is a similar theme we see at our office - it is never too early to plan!