Virtually every parent would agree that their children are by far their most valuable asset. Yet few parents do what is necessary to ensure their children are taken care of by the people they want should the unthinkable happen.
Maybe it’s because they assume a family member would step in and take care of everything. Or maybe it just seems too burdensome or upsetting to think about it that you continue to put it off. Perhaps you envision it being so time-consuming to sit down and figure these things out amongst your busy life that you just avoid it.
We have all heard stories about nightmare situations that have occurred without estate planning. Children placed in the care of unfit guardians. Money becoming the priority instead of the best interest of the people at hand. Unending legal battles that drag on for years and years. The sad part is that all of this can be avoided with some basic planning estate planning.
Here are five mistakes I have seen when it comes to estate planning and how you can avoid them:
#1: Naming Your Minor Children as Beneficiaries
This is one of the most common mistakes parents make with their estate planning. When a minor inherits property – whether through a will, life insurance policy, or retirement plan – a Guardianship must be established through the Probate Court for management of that property. A minor can’t own property, so a Guardian must be appointed to manage the property for them.
So, what’s the problem with a Guardianship? Besides the fact that the judge could pick the last person you would want managing your kid’s money, the Guardianship ends when the child turns 18. At age 18, your child is legally an adult and can therefore own and manage property. The Guardianship will be terminated, and your child will get a check for all the remaining assets. This is true whether she is being given $5,000, $500,000, or $5,000,000. Ask yourself: would you feel comfortable giving an 18-year old $500,000 – with no strings attached?
#2: Not Naming Guardians in a Will
Most parents agree that their children are their most precious asset. Yet many parents with young children fail to create an estate plan or name guardians in a will in the event tragedy strikes. Why? Many are simply unaware of the consequences of not planning. Some assume their closest relatives will step in and accept responsibility should something happen. In reality, what would happen is that a judge will decide who raises your children. And the judge could end up picking the last person you would ever want.
#3: Thinking a Will is Enough
If you are a parent of minor children, a will is necessary, as this is the document where you legally name guardians for your children. There are many things a will does not do, however. It does not prevent your children from getting their inheritance outright at 18. It does not put any protections on the money you leave behind. It does name anyone to manage your health and finances should you become incapacitated. It does nothing to minimize or eliminate estate tax. It won’t adequately protect a child with special needs. Most importantly, a will does not let you bypass Probate Court.
Probate Court is the process of distributing your assets when you are gone. It is expensive, time-consuming, and public. A common misconception is that having a will means you avoid Probate Court. Not so. A will guarantees Probate Court. The only way to avoid Probate is to create a Revocable Living Trust. Attend one of our Free Estate Planning Seminars to learn more about how a Revocable Living Trust can save your family time, money, and hassle when you are gone.
#4: Not Adequately Protecting Your Kid’s Inheritance
Many parents don’t realize they have options in terms of how their children receive their inheritance. Do you want them to get a big check outright? Or do you want to put some protections in place? Leaving money outright is problematic as it leaves it at risk of being spent, gambled away, or lost to a lawsuit or ex-spouse. A better option is setting up an asset protection trust for your children. It will keep the money accessible for their health, education, maintenance, and support, but protect it from a lawsuit, creditors, or divorce. It’s a win-win for everyone.
#5: Putting Off Planning Indefinitely
We totally get it. It’s not fun to think about these things. It forces you to imagine the worst-case scenario. But the alternative of not doing anything is much worse. Passing away without an estate plan is putting your family and assets at risk.
At the Law Office of Laura Cowan, we specialize in creating estate plans that will ensure your family and assets are protected no matter what!
If you are interested in learning more, you are cordially invited to a Free Estate Planning Seminar on April 19, 2018 at 11am or 5pm at our Minneapolis office at 222 South Sixth Street in Suite 3900. We give a comprehensive overview of estate planning and review our firm’s process, packages, and fee structure in detail. Save your seat by emailing [email protected] or calling 855.914.1944.
We look forward to meeting you!