Estate Planning Milestones for Parents

There’s no question that having kids changes your life. Naturally, your priorities and responsibilities shift, and this should also be reflected in your estate plan. Here are a few checkpoints
throughout your child’s life when you should recalibrate your estate plan, ensuring that, no matter what, your child is provided for if something were to happen to you.

Newborn

In the midst of adjusting to parenthood and sleepless nights, crafting an estate plan can easily slip down to the bottom of your to-do list.  Without a doubt, it can be a daunting process.  Many new parents would prefer to avoid thinking about such a grim topic during one of the most exciting times of their lives.  Regardless of how much you’d rather push the matter to the back of your mind, this significant development within your family requires that you update your estate plan (or create one if you don’t already have one in place).

When welcoming a new member of your family into the world, there are two important things to address within your estate plan: the care and custody of that child and the management and distribution of the assets you will leave to them.

For most new parents, writing or revising their will is less about leaving their assets than it is about naming a guardian for their child.  This guardian will assume all responsibility for your child if something happens to you.   They will decide where your child will live and attend school, what type of health care your child will receive, and make other day-to-day decisions regarding your child’s upbringing.  If you don’t name a guardian and a situation arises where your child will need one, the Court will choose the guardian. Because the Court isn’t familiar with your family or your child individually, the person they choose may not be in line with your preferences.

In addition to selecting a guardian, you may also want to set up a trust for your child to preserve your assets for your child when they get older.  This trust could include assets such as your home, your life insurance, your retirement accounts, your savings and investments.  These assets and funds can then be used your child’s education, living expenses, and health care expenses.

Age 5

As your child heads off to kindergarten, you will most likely begin to plan for the upcoming years of schooling and how to lay the best foundation for their future.  You may begin to grapple with
the eventual costs of their education.  When you sit down to plan for their college fund or strategize how to pay for their private education, consider including these plans in your estate plan as well.

There are a few options for how to plan for your child’s education, many parents opt to utilize a 529 plan.   Also known as “qualified tuition plans,” 529 plans allow investment earnings to grow sheltered from federal income taxes.  Withdrawals used to pay for qualified higher education expenses are tax-free.

Age 13

As kids grow up, they organically develop their own relationships with family members and loved ones.  Certain relationships may grow stronger or weaker over time.  Due to these shifting dynamics, it is wise to reevaluate who is named as your child’s guardian when they enter their teenage years.  Does your child have a healthy relationship with the person you’ve designated as their guardian?

Also, consider the general health and circumstances of the guardian you had previously selected.  Have they experienced health complications that might prevent them from performing this role?  Have they moved to another state that would mean uprooting your child if they needed to fulfill these duties as the guardian?  Have they undergone any financial hardships?  As a parent, you know that raising a child is expensive, so consider whether or not this role would strain your chosen guardian’s financial resources.  (Find out more about guardianships)

Age 17

All Wills where a minor will inherit should include a trust to hold and manage the assets until the child reaches the age of majority.  However, when your child approaches adulthood, you may want to reevaluate if you want to give them access to these assets at 18 or later to give them time to mature.   Regardless of how mature your son or daughter may be, they may still fall victim to the bad judgment of others.   There are many potential issues that can put your child’s inheritance at risk, but some of these hypotheticals can be addressed if your plan is updated to take your child’s maturity into account as he or she ages.   (Read more about trusts)

Age 18

Once your child turns 18, he or she is considered an adult.  This means that your son or daughter is legally in charge of their own life now.  If a medical emergency arises, health care providers are no longer authorized to discuss or disclose the details of their condition or care with you.  Nor are you authorized to make medical or financial decisions on their behalf – even if you pay their tuition, cover their health insurance and claim them as dependents on your tax returns. Ensure that you can assist your child with decision-making if they suffer a serious illness or disability by having them sign a Medical Power of Attorney and a Durable Power of Attorney before they leave home for college or take the next step in life.

Age 25

Your estate plan should be revisited once your child marries or starts to have kids of their own.   Consider if you would like to include your grandchildren in your plan, and if you would, when they should be added.

Once an estate plan is completed, many people will put it in a safe deposit box and then forget about it.  I encourage you to avoid this “checked-the-box” mentality.  Estate planning isn’t a one-time thing, it’s a lifetime process. Your estate plan should evolve as your life evolves.

 

Power of Attorney for College Students

As parents begin to prepare their high school graduates to leave for college the to do list can get quite lengthy.  One item that should be near the top is getting a medical power of attorney.  This is necessary because your child is now or likely soon will be eighteen and a legal adult.  This newly acquired adult status is often overlooked and comes with many new rights and responsibilities.  For example, your child is now entitled to medical privacy as a result of the Health Insurance Portability and Accountability Act (HIPAA). HIPAA prevents medical providers from giving medical information to anyone without the consent of their patient.

As a result, if your child is injured you may be unable to get information about their current condition.  Furthermore, with today’s complex family structures the person who should be making decisions can be hard to identify.  A medical power of attorney will solve both problems.  The college bound student will identify who should have access to medical information and who should make decisions if they are unable to.

Planning for a Possible Future Incapacity

We all hope to live a long fulfilled life.  That picture usually includes living in the home of our choice and making all of our decisions.  However with modern medicine prolonging life spans, more and more people are finding themselves needing care at the end of their life.

This care can be as simple as someone coming in to clean the house, help with household chores and fix a few meals.  The other extreme is the need for skilled nursing and living in a nursing home with 24 hour care.  There are many levels of care between the two.

Who is responsible for this care?  Who decides what will be done and when?  From a legal standpoint, as long as you can make decisions for yourself you decide.  Furthermore, you can decide who will step in when you are no longer able to make the decisions for yourself.

The state has guidelines that include a priority list for who should make your decisions.  Your spouse is first followed by your next of kin.  If you have children, they have equal priority because their relationship to you is the same.  However, there are two ways you can control who is considered for your care.

First, a durable (financial) power of attorney and a medical power of attorney will allow someone to step in immediately to care for you temporarily or permanently.  Second, a declaration of guardian in advance of need will provide the court with your priority order.  This declaration is used if a guardianship proceeding becomes necessary.  A guardianship proceeding would appoint someone to care for you and remove some or all of your legal rights.

This declaration allows you to specify who you want to be appointed your guardian if you become incapacitated and need one.  It also allows you to specify individuals who should not be considered.  You can have control of your future with these simple documents.

Planning for Non-Traditional Families

While the need for proper estate planning is the same for both traditional and non-traditional families, some of the planning techniques used are different.  Same sex couples are not treated the same as traditional married couples for many purposes and while these differences in treatment present challenges, they are not insurmountable with proper planning.

Same sex couples, just like opposite sex couples, must have the four key documents.  The four documents include a will, a medical power of attorney, a durable power of attorney and a living will.  These documents are the foundation of any estate plan, whether for traditional or non-traditional families.

Non-traditional families must pay special attention to several key areas.  Who will make decisions for you if you are unable?  What are the tax implications of transfers now and at death?  When can beneficiary statements solve the problem?  Each of these questions is touched on below and will be covered in depth in a future blog post.

What can same sex or unmarried couples do if they want their partners, instead of their biological relatives, to make decisions on their behalf? This question frequently arises during medical emergencies.  Preparing before the emergency strikes will arm your partner or the person of your choosing with the tools necessary to ensure your wishes are honored.  A variety of planning techniques are available to meet the needs of your family.

Same sex and unmarried couples are treated differently for tax purposes.  They are not eligible for the marital deduction at the death of their partner.  They have no community property rights.  There is no tax protection for property transfers during life between partners.  There are planning tools available to help overcome these hurdles.

Finally, the importance of beneficiary designations cannot be stressed enough.  Properly completed beneficiary statements in various financial documents, including life insurance policies and retirement plans can aid in property transfer at death.  Beneficiary designations are critical and should be considered in conjunction with the entire estate plan.

Same sex and unmarried couples need to work with an attorney to develop an estate plan that anticipates challenges and delivers the intended results: to honor their relationship with their partner, ensure their partner can make decisions on their behalf if necessary, and to designate their intended beneficiaries.

Four Documents Every Estate Plan Needs

The four documents that create the foundation of a good estate plan are a willmedical power of attorneydurable (financial) power of attorney and a living will.  Each of these documents provides protection for specific issues associated with death or incapacity.

A will details your wishes after you pass away. A will allows for a smooth transition for the loved ones you leave behind.  It will designate someone to take control of your estate, care for your dependents, distribute your property and make the transition as painless for your loved ones as possible.

A medical power of attorney appoints a person to make medical decisions if you are unable. A medical power of attorney can also include a list of specific procedures you do or do not want allowed.

A durable (financial) power of attorney appoints a person to make financial decisions if you are unable. This is a flexible document that can be used to give limited or unlimited power over your financial affairs.  It can become effective immediately or only if the named individual becomes incapacitated.

A living will express your wishes for end of life decisions and can appoint a person to make decisions if you are unable.  This document differs from a medical power of attorney because it is only effective if a doctor has determined you have a terminal or irreversible condition.

The requirements relating to the validity of each of these documents are found in state law.  As a result, an attorney should be consulted to ensure your documents are valid in your state of residence.  If you have a job that requires you to relocate regularly a trip to a local attorney should be on your to do list any time you move.

Different Types of Power of Attorney

The two types of power of attorney are medical and durable.  A medical power of attorney addresses who should make medical decisions if you are unable to make them for yourself.  A durable power of attorney addresses financial decisions.  Either power of attorney can be customized to fit the needs of your situation.

A medical power of attorney allows any adult to specify who should or should not be allowed to make medical decisions for them if they are incapacitated.  A medical power of attorney can also include a list of specific procedures you do or do not want allowed.

A properly drafted medical power will also include Health Insurance Portability and Accountability Act (HIPAA) powers.  This power will allow the person making decisions to access any medical information they feel is necessary to make a decision on your behalf.

A durable power of attorney allows any adult to specify who can make financial decisions on their behalf.  A durable power of attorney is a flexible document that can be used for a single transaction or to give unlimited power over your financial affairs.  It can become effective immediately or only if the named individual becomes incapacitated.

A durable power of attorney can be specific to a unique transaction.  This often occurs when couples are buying or selling a home and one person may not be available to sign documents related to the transaction.  However, a transaction specific power of attorney can be drafted for any financial transaction.

A durable power of attorney can become effective immediately creating a power over financial affairs concurrent with their own.  The power of attorney can also become effective only upon the incapacity of the named individual.  This would prevent the named agent from acting on your behalf as long as you are able to manage your affairs on your own.

Since the format of any power of attorney must conform to the requirements of the state of residence, individuals should seek legal counsel in their state of residence to ensure they have valid enforceable documents.