Estate Planning

Is your children's future protected?
 
Published Friday, July 10, 2009 7:00 am

by Jeffrey A. Bolton, CPA



Protect your children's future with proper
(and up-to-date) planning

Although it is a difficult subject to face, you have options when it comes to protecting your estate and your family. The steps you take now can help prevent the wrong people from making decisions for your loved ones in the future. One unpredictable aspect of sudden loss is that you never know how you or your family members will react to events until they actually occur. No one can ever be completely prepared to deal with personal trauma compounded by legal and financial concerns, but there are steps you can take to help your family through this difficult period.

As a parent, you're always thinking about what's best for your children. But have you thought about what might happen if you're no longer around? It's not a pleasant subject, but it is important. Planning for your children's future is even more important if you're not around to help them. If you're a single parent this task becomes even more difficult. Single parents have a number of special estate planning concerns. At death, for example, there is no surviving spouse to take care of financial and personal family affairs. To help protect family and property, a single parent needs to establish an efficient estate plan during his or her lifetime.

The following estate planning strategies will help organize your information and clarify your wishes so that you are as prepared as possible whenever the inevitable end of the life cycle occurs. It is essential that the documents referenced in this article are accessible to your loved ones. Make sure that your family members are aware of where they are located or how to access them when the time comes.

Drafting a will and designating guardians
Preparing a will does not have to be complicated, but there are specific steps you must take to help make sure that your will holds up in court. A will typically provides guidance for asset distributions and may also appoint an estate executor, as well as guardians for minor children. A probate court determines the validity of a will and ensures that it is faithfully executed according to your wishes. Certain property transfers occur outside a will, for example, assets such as retirement accounts, property in a trust, or jointly owned property. These assets will pass to the designated beneficiaries (if any), avoiding probate.

If you haven't already, make sure to have a will drafted by a qualified attorney, in which you name one or more individuals to be the legal guardian of any minor child -- typically until the child reaches age 18. A guardian will have to make decisions regarding the care and upbringing of the child. The person(s) named should be consulted before the will is drafted to be sure they are willing to accept the responsibility. Since the designated guardian may become unable to serve, it is also a good idea to name one or two successor guardians. You may name a completely different person to be responsible for overseeing your children's financial affairs.

A single parent may be divorced and have legal custody of a minor child. At death, custody may automatically shift to the surviving parent regardless of what a will says. It is important to know that although divorce terminates a marriage, it may or may not affect a surviving parent's custodial rights. You should consult your attorney regarding your particular circumstances and the options available to you.

For more information about wills, please review:
"Where there's a will, there's a way to protect your loved ones"
and
"Ensure your assets are distributed as you wish – establish a will and trust"

Documenting other valuable items
Along with your will, it's a good idea to make a list of all your bank accounts, investment accounts, safe deposit boxes, insurance policies, retirement accounts, pensions and similar documents to help your executor administer your estate. Make copies of property deeds, titles and insurance policies. Attach the list and copies to your will and keep everything up-to-date. Review your estate documents at least annually to make sure everything is accurate and valid. It's also important to re-examine these papers following any major life change, such as marriage, divorce, birth of a child or relocation to a new state (where your existing will may not be valid).

Establishing a trust
While a child may be an adult in years, he or she may not yet be mature enough to handle, invest or manage property. You can establish a trust to protect the property you intend to pass on to your children, no matter what their age. Trusts can protect assets for anyone you desire and may continue even until the death of the child and beyond.

One of the most important decisions is who should be the trustee. The trustee (individual or professional) will manage the assets and make distributions based on the specific instructions you provide in the trust document.

A divorced parent who dies and is survived by minor children may not want his or her former spouse to have control over money left to the children. A trust can be created to control the funds left to children even if the former spouse becomes the children's guardian.

For more information about living trusts and other estate planning documents, please review:
"Everything you want to know about estate planning but are afraid to ask"

Paying estate taxes
Under current tax law, the amount subject to estate tax and the percentage to be taxed on the remaining estate will decrease until 2010, when the estate tax is scheduled to be repealed. However, unless current law is extended by Congress, the estate tax is due to be reinstated in 2011. Because of the uncertainty as to the future of the estate tax, individuals with assets over $1 million should consult an attorney, a tax advisor and a financial professional to consider effective estate planning strategies.

In addition to federal estate taxes, some states impose their own estate or inheritance tax. Additionally, some forms of property, such as traditional IRAs, pensions, deferred compensation survivorship benefits, and deferred annuity death benefits may be subject to income taxes.

For more information about estate taxes, please review:
"Estate tax laws may be changing again soon"

Gifts or bequests to a surviving spouse are generally exempt from federal estate taxes under the unlimited marital deduction. In addition, the income tax due on IRA and qualified plan distributions payable to a surviving spouse can be deferred by rolling them over to a surviving spouse's IRA.

Without a surviving spouse, the marital deduction is unavailable and both estate and income tax can be triggered. A single parent should consult an estate planning professional to discuss ways of reducing the estate tax, such as by making gifts or implementing other strategies.

For more information about charitable giving, please review:
"Safeguard deductions for charitable gifts"

Alimony payments
Some single parents are dependent on former spouses for support. If the spouse providing the support dies, payments may end. The spouse receiving the support may consider purchasing life insurance on the life of the supporting spouse with that person's consent. Or the supporting spouse may be required to provide life insurance under the divorce agreement.

Income protection
Parents should consider a financial protection plan that includes Life and Disability Income Insurance, which you can develop with your financial professional. You should determine how much capital or income is necessary to help protect your children or other beneficiaries. For example, money may be needed to help maintain a home for children, pay for college or cover other expenses in the event of the breadwinner's death or disability. This financial protection plan should be coordinated with a will or trust.

Living documents
All parents should have an up-to-date power of attorney, health care proxy and living will. A power of attorney basically gives another person the right to pay bills on your behalf and otherwise manage your finances according to the terms of the document, which is typically drawn up by a qualified estate planning attorney.

The health care proxy and living will give you the opportunity to express your desires concerning the use of life support and other treatments to keep you alive and permit medical decisions to be made for you if you are unable to do so. Often, married couples rely on each other to make these types of decisions. A single parent may want to consider having a close friend or family member make these decisions if a tragedy occurs.

For more information about living wills, please review:
"Incorporate a living will into your estate plan"

Review your estate plan now
Although it is a difficult subject to face, you have options when it comes to protecting your estate and your family. The steps you take now can help prevent the wrong people from making decisions for your loved ones.

If you have an existing estate plan, make the time to sit down with your trusted advisor to review your plan and make possible revisions. Ordinary changes in your life can make a previously well-prepared estate plan improper for the future. Some examples of triggering events may include the birth or death of a family member, marriage or divorce, a move from one state to another, a change in the composition or amount of your assets, business arrangements or tax law changes.

The most effective way to keep your estate plan current is to review it on a regular basis. We can review your plan with you and determine whether changes are warranted while telling you more about estate planning strategies and incorporating personal estate-planning items (such as a living will) into your plan.  We can make sure that your future is well planned and will meet the needs of you and your family.

 

Jeffrey A. Bolton, CPA is a co-founder, Partner, and member of the firm's Executive Committee. He works closely with our Entrepreneurial Services and Strategic Business Solutions groups. As an experienced CPA, Jeff provides expertise in entrepreneurship, tax and accounting. His practice primarily services family-owned, emerging and high-growth companies. Jeff's focus is helping business owners achieve success through the implementation of profit enhancement, expense reduction, asset protection and business process solutions. Contact him directly via email at jbolton@daszkalbolton.com  or by phone at 561.886.5292.

 


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