As a New Parent, Have You Updated (or Created) Your Estate Plan?

You just had a baby. Now you’re sleep-deprived, overwhelmed, and frazzled. Having a child dramatically changes one’s legacy plan and makes having a plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

Take time to talk through two high-priority items. Create a staggered checklist—starting with today—and set attainable dates to complete the rest of the tasks. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who will care for your children, if something happens to both you and your spouse. A will also should name a guardian to be responsible for the children. Parents also should think about how they want to share their personal belongings and financial assets. Without a will, the state decides what goes to whom. Lastly, a will must name an executor.
  2. Beneficiaries. Review your beneficiary designations when you create your will, because you don’t want your will and designations (on life insurance policies and investments) telling two different stories. If there’s an issue, the beneficiary designation overrides the will. All accounts with a beneficiary listed automatically avoid probate court.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court, including property. This avoids court fees and hassle. A trust also provides some flexibility and customization to your plan. You can instruct that your children get a sum of money at 18, 25 or 30, and you can say that the money is for school, among other conditions. The trustee will distribute funds, according to your instructions.
  4. Power of Attorney and Health Care Proxy. These are two separate documents, but they’re both used in the event of incapacitation. Their power of attorney and health care proxy designees can make important financial and medical decisions, when you’re incapable of doing so.
  5. Life Insurance. Most people don’t think about purchasing life insurance, until they have children. Therefore, if you haven’t thought about it, you’re not alone. If you are among the few who bought a policy pre-child, consider increasing the amount so your child is covered, if something should happen.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

 

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Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

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How Do I Include My Pet in My Estate Plan?

A recent survey of pet owners showed that nearly half (44%) of pet owners have prepared for the future care of their animals, in the event their pets outlive them. With traditional financial planning instruments like living trusts, life insurance, and annuities, pet owners can have peace of mind knowing their pets’ needs will be met.

Forbes’s article, “3 Financial Planning Tips For Pets Owners,” says that typically, “pet estate plans” should cover more than simply who will care for the pet, when you are no longer around. Expenses such as food, doggie day care, veterinarian bills and medication should also be considered.

20% of all respondents in the survey said they have financially planned for their pets’ future care. About 38% said they added the pet’s future caregiver as a beneficiary to a life insurance policy and 35% added more coverage to their life policies. 13% also recently purchased annuities naming the pet’s caregiver as the beneficiary.

However, many pet owners forget about end-of-life planning. Consider an individual trust for your pet or donating funds to your local humane society or pet shelter.

One question many have before adding a new animal to the family, is whether they can afford it. The cost of an animal from a breeder can be high, so a more affordable option is to check out your local humane society or animal rescue group. Remember that the costs of food, vet bills and other supplies are just as important to think about, before making a pet a part of your family. Pets are too often returned to animal shelters, because pet parents were unable to afford to properly care for the pet.

Last, ask about pet insurance at your veterinarian. Many clinics offer plans and staff members will be able to talk to you about the right option based on the type of animal, breed, age and other criteria of your pet.

Simple steps like these will make certain your pets are cared for properly and affordably.

Reference: Forbes (January 27, 2019) “3 Financial Planning Tips For Pets Owners”

 

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