Once you become a legal adult, estate planning is something you should consider doing. While estate planning always has the same basic structure, it can look very different depending on whether you are an 18-year-old with few assets, a 30-year-old with young children, or a 55-year-old with a significant legacy to leave your children. Estate planning for young families can be particularly tricky because things can change constantly as your family grows in both size and age. You may want your estate plan to be something you create and never think about again, but as your children grow, you will likely need to revisit it many times to ensure it meets your own and your family's needs. If you are ready to create an estate plan for your young family in Austin, an experienced estate planning attorney with Jason English Law may be able to assist you.
You may schedule a free consultation by calling (512) 454-7548 to go over your estate planning needs.
What Are the Three Main Priorities You Want To Ensure With Your Estate Plan?
If they have never created an estate plan before, many people mistakenly believe it is as simple as writing a Last Will and Testament. If they have a little more knowledge, they may also know about trusts. There is much more to an estate plan than a will and trusts. There are three main priorities that an estate plan should address.
If an individual dies without a will, they have died intestate. Without a will, the assets in an individual's estate are distributed according to the intestacy laws of the state in which the deceased individual was a resident. This means an estranged sibling, parent, or cousin could end up with the individual's estate. In some cases a stranger might even end up inheriting guardianship over the decedent's minor children.
With an estate plan, individuals can write a will and/or create a trust that allows the individual to specify exactly who should get which assets when they die. This can be particularly important for parents who want to leave assets for their minor children. Parents can set up their estate plan so that an adult oversees the assets meant for the children and ensures that those assets are passed to the children when they reach adulthood.
Decision-Making Authority in Case of Incapacity
Estate planning, and particularly estate planning for young families, is about more than just what happens to a person's assets after they die. A comprehensive estate plan includes detailed information about what happens if the individual is incapacitated. This information includes:
- An advance directive, or living will, that indicates the individual's desires around end-of-life care and other healthcare decisions that may need to be made while they are incapacitated.
- A healthcare power of attorney (POA) or designation of healthcare surrogate that gives another person decision-making authority. This person then ensures that the wishes stated in the advance directive are carried out and makes any decisions that need to be made that are not mentioned in the living will.
- A durable POA that names someone to handle the incapacitated individual's legal matters. This might include paying their bills, running their business, and handling other matters that must be handled immediately. The same person can be named for both the durable and healthcare POAs.
Guardian and Beneficiary Designations
Parents with minor children should designate a guardian for their children as part of their estate plan. Without this designation, the probate court may put the children in the custody of a relative that the parents would not have wanted to raise their children. Parents should discuss this designation with the person or people they plan to designate to ensure that the proposed guardian(s) are comfortable with it.
Additionally, there are many assets that require a beneficiary designation. Life insurance, retirement accounts, bank accounts, and other assets give the proceeds or funds to the named beneficiary when the account holder or policyholder dies. For many parents, creating a trust for the benefit of the minor children and naming the trust as beneficiary on these types of assets is a good way to ensure the children are financially provided for.
What Are Some Common Mistakes People Make When Setting Up Their Estate Plan?
Estate planning for young families can be complicated and confusing, particularly in blended families and for people with stepchildren. When setting up an estate plan, it is easy for parents to make common mistakes. These common mistakes can leave enormous gaps in the estate plan, however. These gaps can result in the individual's estate ending up in probate court and a judge making decisions that the individual would not have wanted.
Failure To Properly Fund the Trust
Creating a trust is more than writing up the trust documents. The trust must also be funded properly with assets from the individual's estate. Many people mistakenly think that writing up and signing the trust documents is the same as funding the trust. Once the trust is created, funding it requires changing asset titles and deeds or signing a general transfer form for items that do not have titles, such as furniture or artwork. An experienced attorney at Jason English Law may be able to help you fill out the appropriate documents to ensure your trust is properly funded.
Failure To Update the Estate Plan
A couple has their first child and creates an estate plan to ensure their newborn is taken care of if they die. Then, they have three more children and their estate plan has not been changed. Perhaps a couple has gained significant assets or monetary wealth since they created their estate plan, but they have not updated the plan to reflect the new assets or money. When this happens, the estate plan will only protect what is included.
An outdated estate plan may result in an individual's estate going through probate and being distributed differently than they would have liked. Anything not included in the estate plan would be distributed by the probate judge. If the individual had more children than named in the estate plan, the judge may award guardianship to the person named for the child included in the estate plan, or the judge may choose someone else. Keeping your estate plan current to reflect the beneficiaries and heirs you have, the assets to be distributed, and your wishes for incapacity is crucial.
Not Planning for Potential Disability or Incapacity
As mentioned above, an estate plan should include a plan for the individual's incapacitation. While this plan may never be needed, if it is necessary, the plan ensures that the individual's wishes are carried out when they are unable to make their own decisions.
Without a living will, and the appropriate POAs, an individual's family may have to go to court to get a judge to give someone decision-making authority. This can take time, possibly even weeks, and be expensive. Having to go to court during this stressful time will also just add to the family's anxiety and worry.
Naming Minors as Direct Beneficiaries
When parents want their minor children to inherit their money, their first thought might be to name the children as beneficiaries to life insurance, retirement accounts, or other similar assets. Unfortunately, minor children cannot be named as beneficiaries for many of these assets. Minor children also cannot own assets such as real estate.
Fortunately, the simple solution to this is to create a trust. Assets such as real estate can be placed in the trust to be distributed to the minor child once they are an adult. For the proceeds of life insurance or retirement accounts, individuals can name the trust as beneficiary. The trustee of the trust would then be able to distribute those funds to help provide for the minor children and once the children are adults, distribute the remainder as instructed by the trust.
How Do I Protect My Estate From Stepchildren?
An unfortunate reality of today's world is that many marriages end in divorce. This means that for many couples, they are in a second or even third marriage and not only have children of their own, but stepchildren as well. In some cases, these stepchildren are loved and accepted as their own. In others, the stepchildren are already adults, or there are other reasons why an individual feels the need to protect their estate from the stepchildren. The Texas Estates Code does not give stepchildren the same inheritance rights as a biological or adopted child. However, if an individual leaves all or part of their estate to their spouse, their spouse could then leave all or part of the estate to their children.
There are several options for ensuring that stepchildren either do not get any of an individual's estate or that they only get a specified portion of the estate. These options include:
- Naming specific beneficiaries in the will: By leaving specific assets to specific beneficiaries, an individual leaves no doubt as to who they want to inherit their assets.
- Leave the spouse a limited portion of the estate: Knowing that anything the spouse receives may be passed on to the stepchildren, individuals may opt to leave only a limited portion of their estate to their spouse. They may choose to put the rest in a trust or to leave it to their children by naming them specifically.
- Set up a trust: A properly structured trust allows individuals to name specific beneficiaries and even to stipulate how and when those beneficiaries benefit from the trust.
- Set up a Marital Bypass Trust: This is a specific type of trust that allows the surviving spouse to receive all income from the trust for the rest of their lifetime. When the individual sets up the trust, they indicate in the trust documents where the trust assets should go after the spouse dies.
How Do I Protect My Child's Inheritance From Their Spouse?
Another concern parents may have is protecting their child's inheritance from a future divorce. The Texas Family Code states that inheritances are not considered marital property. This means that inherited money or tangible property are protected from the moment they are inherited. However, if the child commingles their inheritance, or the income from that inheritance, with marital property, the inheritance can lose its protection and become marital property. Parents should also consider that their adult child may live in a different state if or when they divorce, and the laws of that state may handle inheritances in divorce differently.
There are several options a parent can take to try to protect their child's inheritance from a potential future divorce. Many of these options may not only protect the child's inheritance in the event the child one day divorces, but also if the child's parents were to divorce.
Naming the Child Alone as Inheritor
Christmas cards may be addressed to both spouses, but individual gifts are usually addressed to the spouse for whom they are intended. This holds true for an inheritance as well. If an individual names both spouses in a will or trust, then both spouses are considered to have inherited the money or asset. If a parent wants to protect their child's inheritance in a divorce, one way to try to do that is to specifically name only their child as the one inheriting the asset.
If the parents wish to leave something to their child's spouse, they can name the child's spouse separately and give them a separate inheritance. This also makes it easier to update the will or trust in the future if the couple does divorce.
Setting Up a Trust
An inheritance through a will is considered separate property, but if the person who inherits it commingles it with marital property, the inheritance loses that protection. However, if an individual places that inheritance in a trust and only names their child or children as beneficiaries, spouses do not have any access to those assets if they remain in the trust. The trust offers much greater protection than the will.
While the child can still commingle their distributions with marital funds or property, this would be a much smaller loss than losing everything because they commingled all of their inheritance. The child may also consider consulting with an estate planning or divorce attorney to learn more about how to protect their inheritance in a divorce.
Prenuptial or Postnuptial Agreements
Prenuptial agreements are signed prior to getting married, while postnuptial agreements are signed after the marriage has happened. Either document can specify who owns what and who gets what in a divorce. While there are some things that cannot be included in a pre- or postnuptial agreement, such as matters of child custody, individuals can include any inheritance they have already received or expect to receive in the future.
To make one of these agreements even stronger and gain more protection, individuals should include inventory lists, account numbers, and any other disclosures and details that will make the inheritance being protected as clear as possible. Individuals may want to consult with an attorney to ensure that their prenuptial or postnuptial agreement is properly structured and offers all the protection they intended.
Do You Have More Questions About Estate Planning for Young Families?
Estate planning for young families means reviewing and updating your estate plan as your family grows and evolves. When you have minor children, estate planning means looking ahead to your own future as well as theirs, and trying to plan for both the near and far futures. As a parent, you want what is best for your children. Make sure your estate plan provides that.