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.


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.


Beneficiaries with Substance Abuse Issues

As I work with families on their estate plans, one of the more difficult issues that  is raised is what to do when a family member has a substance abuse problem.  Substance abuse effects people of every generation and takes on many forms.  Whether it’s alcohol, prescription drugs, or illegal narcotics the affects on the family can be huge.  Families facing this concern should consider the following questions when designing their estate plan:

  1. Has the beneficiary ever been diagnosed with a mental illness?
  2. Is the beneficiary having a particularly hard time – is divorce on the horizon? Has he lost his business? Does he gamble?
  3. What is his relationship with other family members?
  4. Who does he trust?
  5. Who is giving him money?
  6. Is he eligible for government assistance?
  7. Who is paying his health insurance?
  8. Is he employed? For how long? What types of jobs?
  9. Has he ever been treated for his addiction?
  10. Is he a member of Alcoholics Anonymous or a similar organization?
  11. Do these issues run in the family?
  12. Has there been a family intervention?
  13. Is he open to counseling? Has this topic been addressed?
  14. Where is he living? Can he live alone?

Substance abuse often masks other underlying mental health issues, including undiagnosed or untreated schizophrenia, bipolar disorder, and depression. That these issues are often part of a larger family pattern makes having the discussion much more difficult, but much more essential.

Estate Planning Tools

As complex and emotional as these issues are, families must address them. Inevitably, an estate planning discussion will include disinheritance. While this subject is frequently discussed, it is less frequently implemented. At the end of the discussion most people still want to provide some type of assistance to their family member.  However, the nature of the relationship may affect that desire.  Parents, Grandparents and Siblings may all view the problem and solutions differently.

Rather than disinheritance, a common solution is to establish a trust.  The difficult decision, however, is who will serve as trustee.  If there are significant assets, then choosing a corporate trustee is the simple choice. The other family members or trusted friends can then have the right to remove or replace that trustee during the trust duration. If there are not sufficient assets to warrant a corporate trustee, then family members or friends must step up.  The trustee should review the trust document to ensure that he has the right to resign from his office, and understand the mechanism for subsequent trustee appointments. The document should provide the trustee with the authority to expend funds for purposes such as counseling, detectives, drug testing, and private security.

After deciding on the line of succession and identifying who will operate the trust, you need to focus on the various purposes for which the trustee may or may not distribute income and/or principal from the trust to the beneficiary.

If the beneficiary is likely to require government assistance, then the terms of the trust must contemplate that. The trust document may also give the trustee authority to withhold payments if deemed advisable. This is often preferable to asking that trustee to determine whether a beneficiary is drug-free. Those suffering from substance abuse can be clever, and making such a determination is tricky.

Rather than withholding payments, another approach is to provide the beneficiary with incentives for staying clean. The trustee could provide additional distributions if the child holds a full-time job or regularly attends counseling sessions. Making the distribution provisions restrictive and under the trustee’s sole control can help protect those assets from the troubled child’s creditors, or from any of the many “friends” and acquaintances who might take advantage of him if they believe there is money in his pocket.

You may rightly choose not to make these troubles public, or put them in a trust document that others can access. I encourage my clients to write an annual side letter to the trustee that describes their observations and offers details that they are reluctant to share while living. This letter should be placed in a sealed envelope, kept with the original estate planning documents, and updated/revised as circumstances change. This will allow the successor trustee to act in a manner consistent with your goals and objectives.

Planning for the beneficiary with a substance abuse issue is complex and can have consequences that affect the entire family.  A plan created now should be good enough to handle today’s circumstances, yet flexible enough to contemplate the unknown. Revisit the plan every few years as circumstances change and evolve and consider what changes may need to be made.

Do You Know the Difference Between Medicare and Medicaid

Many people confuse medicare and medicaid.  Medicare is provided to seniors over the age of 65.  It is a federal health insurance program.  Medicaid is a needs based federal assistance program that pays for health care for individuals with few assets and low income.

Because the criteria for the two programs is different, qualifying for one does not mean you qualify for both.  The asset and income eligibility limits for medicaid are quite low but you can qualify regardless of age.  However, you need only be 65 or older for medicare and your assets are not considered.

Knowing the difference can become very important if you or your loved ones need long-term care in a skilled nursing, assisted living or memory care facility.  Medicare will pay for several months of this care and then you will be expected to pay out of pocket unless you qualify for Medicaid.

In some cases, the use of a trust can help you qualify for medicaid.  This will prevent you from depleting all of your assets on long-term care.  This is of particular interest when a surviving spouse is still healthy and needs to reserve assets for their own future maintenance.

Minor’s Trusts

Trusts are used for a variety of planning purposes.  One such use is a trust commonly included in wills.  It is a minors trust.  A minors trust allows you to place any inheritance that would be received by someone under the age of 18 into a trust.

The trust then functions in several ways.  First, it allows the minors caretaker to gain access to the funds for the health, education, maintenance and support of the child.  These provisions  give the trust flexibility to respond to the situation as it develops.  There is no need to foresee a medical condition or contemplate private school.

Second, although it is called a minor’s trust you can compel creation of the trust for a person under any defined age.  By creating a trust for all beneficiaries under 25 you can prevent a young adult from making some foolish choices while still paying for their college.

Finally, the trust assets can be distributed in full at a defined age or a series of disbursements can get arranged.  This might look like a 25% disbursement at 25 and 30 years of age followed by full disbursement at age 35.  As long as the trust is in force the beneficiary can gain access to the funds for their health, education, maintenance and support.

If the trust includes spendthrift provisions then it will be protected from the beneficiaries creditors.  If they owe money the creditor cannot gain access to the assets held by the trust.  The creditors can go after money as it is disbursed to the beneficiary within the guidelines of the law.

A trustee should be named in the will creating the minors trust.  The trustee can be the same person caring for the children but does not have to be.  This is particularly helpful if you feel the correct person to raise your children is not the best person to manage money.

Trusts Can be an Important Planning Tool for Non-Traditional Families

The use of a revocable trust can be an important estate planning technique for non traditional families and same sex couples.  All estate planning should begin with the four key documents but non traditional families and same sex couples need to take that planning a step further.

A revocable trust is established during a person’s lifetime and the trust document names a trustee and one or more successor trustees to manage the assets that are transferred to the trust.  An individual might name themselves as the trustee and their partner as the successor trustee.  If both partners contribute assets to the trust then they may choose to be co-trustees.  The trust can provide that the individual will manage the assets in the trust until he or she becomes incapacitated or otherwise turns over control to their partner or any other designated individual.

Upon death, the trust’s assets will not be subject to probate laws, making the transfer of assets private and seamless.  Unmarried partners can use this to transfer property to their partner instead of biological relatives at death.  Also, by naming the partner as co-trustee or alternate trustee, the partner is given access and control over property that might otherwise fall to biological relatives.

There may also be tax benefits to using a revocable trust.  It can postpone the tax implications of transferring property from one partner to the other.  However, there may be tax consequences at death depending on the size of the estate.  There are a number of strategies that can be implemented allowing the partners to reduce the tax implications of the transfer of assets at death.

Finally, it is prudent to use a revocable trust, instead of an irrevocable trust.  Since marriage between same sex partners is not currently recognized, there are also no corresponding divorce protections in the event two partners no longer wish to be attached.  A revocable trust can be easily dissolved allowing the partners to divide their assets if the relationship ends.

The revocable trust can be an excellent tool.  Non traditional families and same sex couples should work with an attorney to see if a revocable trust should be added their estate plan.

Estate Planning for Pets

In some households pets are key members of the family and any estate plan that doesn’t address their needs would be found incomplete.  An important first step in this process is to discuss your desires with the person you wish to care for your animals after you are gone.  There are several questions you should ask yourself and discuss with the potential caregiver.

  • Will you care for my pets?
  • Is there a limit on the number or type of pets you will care for?
  • Can you manage the additional expense of the pet?

The simplest solution is to include a bequest in your will.  This allows you to leave your pet to another person you know will love and care for them after you are gone.  If you have a variety of pets you can leave their care to various individuals.  Leave the dogs to the dog lover and the reptile to the reptile lover.  If it is merely overwhelming in quantity then having discussed how many animals each person feels they can handle is the key to success.  If you wish the bequest can include a gift of money to help care for the animals.

You can create a pet trust during life or in your will.  You leave your pet and certain funds or property for the care of your pet to a “trustee”.  The trustee is responsible for the care of your pet.  In some cases the trustee manages the financial aspects while a different person is the actual animal caretaker.  A pet trust gives you a great deal of power by allowing you to specify exactly how your pet should be cared for in your absence.

There are a number of programs in place to care for pets after their owners have passed away.  Texas A & M University has the Stevenson Companion Animal Life-Care Center where pets are cared for in a home like environment.  All programs require a donation based on a variety of factors.

You should always have contingent plans for the care of your animals.  The person you have named may be willing but unable to care for your pet when the need arises.  The programs you have selected might no longer be in existence.  Be sure to select alternate caretakers to name in your will or trust documents.  This planning will ensure your pets are cared for in the manner you choose.

Overview of Trusts

A trust is a separate legal entity created for a defined purpose.  In estate planning that purpose is often to reduce a taxable estate or to care for loved ones who are unable to manage their finances.  Trusts can be a great tool to accomplish your goals.

The person who creates the trust is called the grantor or settler.  The trust is created as either a revocable or irrevocable trust. If a trust is revocable the grantor can dissolve the trust and take control of the assets held in the trust.  If it is irrevocable the grantor cannot dissolve the trust.  This is an important distinction for certain types of planning.

Trusts can be created during the life of the grantor or at death with a will.  Each method of creation is a viable planning strategy.  Trusts created during the life of the grantor are often to solve or address a known problem.  For example if you relocate regularly for your job, owning property in a trust will allow for simplified planning and reduce the need to update estate planning documents with every move.  Trusts created at death with a will are designed to address the unknown problem such as minors inheriting from their parents.  This type of planning will also protect a spouse or adult child that has become incapacitated since the will was drafted.

Trusts can be created to shelter certain assets from estate tax at the death of the grantor.  They can be created to provide for the surviving spouse and then the charity of the grantor’s choosing.  They can provide for a minor child needs until they reach a specified age and are allowed to manage the funds directly.  Trusts can be created to provide for an individual with special needs who is receiving aid without disqualify the person from receiving the aid.

Trusts are flexible tools that should be considered when you and your attorney draft your estate planning documents.  Planning for the future and the protection of your loved ones should include a discussion about trusts.