Illness, incapacity and death can happen at any time and there are many decisions that Young Families need to make to prepare for the unexpected.
What If You Don’t Have an Estate Plan?
If you pass away without an Estate plan, you die intestate, which means that your Estate will be distributed by predetermined state guidelines, and the courts get to decide who is awarded custody of your children and who controls the inheritance you have left for them.
Custody Of Your Children
Without even a basic will, you will not have any say about who assumes custody of your children. A judge with no knowledge of your wishes will appoint a guardian for your children in family court. It can take months for a full hearing to award final custody and guardianship to the person the Court deems to be the most capable.
Potentially, your family and friends could end up battling over custody arrangements, causing emotional rifts among your loved ones for years to come. Or, worse yet, your children could temporarily or permanently be placed in foster care.
In the alternative, if you had nominated a guardian in a Will, the judge would have taken into consideration the person you named and most likely awarded custody to that individual.
Control of Your Children’s Inheritance
To make matters even more complicated, there may be a separate Court hearing to determine who will be in charge of the inheritance that you leave for your underage children. The financial guardian, or guardian of the Estate, may or may not be the same person who was awarded custody of the children.
The financial guardian will be in control of your children’s inheritance until they come of age. At that point, they may receive their full inheritance outright. Due to the young adult’s financial inexperience and immaturity, their inheritance may be squandered.
Probate of Your Estate
Without a Will or a Revocable Living Trust, any assets, including life insurance proceeds, will be divided according to predetermined state guidelines for intestacy in Probate court. These guidelines are based on a one-size-fits-all approach to division of wealth. This formula, written by state legislators, doesn’t always contemplate non-traditional families, such as those with children who are not yet adopted or unmarried partners, and may instead distribute the Estate only to legally recognized relatives.
Additionally, having your Estate settled in Probate court makes all of your finances and personal information a matter of public record. Not only is this embarrassing and invasive, but it can also be dangerous for your surviving family members, as it makes them easy targets for predators, solicitors, and scam artists. The good news is that Probate can be avoided easily with a proper Estate plan.
Joint Tenancy Property Ownership
If you are married, when you and your spouse open a checking account, buy a car, purchase a home, or acquire just about any other asset you can think of, the first — and usually only — impulse is to put the title in both your names as Joint Tenants.
Additionally, many families, including parents with young children, choose Joint Tenancy as their Estate Plan because they have heard it is a cost-free replacement for a Will and that it avoids Probate. These individuals focus on the fact that at the death of one of the owners, Joint Tenancy immediately passes full ownership of an asset to the surviving Joint Tenant by operation of law. So, yes, it does circumvent Probate and avoid the need for a Will, at least temporarily. Unfortunately, these people are overlooking the fact that upon the death of the surviving Joint Tenant, the entire Estate will have to pass through Probate.
Joint Tenancy also brings with it a slew of problems that more than offset any short-term convenience it provides. For example, if you should pass away unexpectedly and your surviving spouse remarries, you may not have control of how your children’s inheritance is distributed.
A solution many rely on is to establish a Revocable Living Trust and re-title their assets in the name of the trust. The trust will avoid Probate and provides protection in case your surviving spouse remarries, allowing you to specify when and how you want your assets distributed to your children.
Special Considerations for Divorced Parents and Blended Families
In this age of divorce, remarriage, and blended families, parents who are divorced or remarried may have an even greater need for Estate Planning – and more difficult challenges to overcome. Without a carefully designed Estate plan, there is much at stake for blended families and the children involved.
Naming a Guardian
Single and divorced parents may not have a partner to care for their children if something should happen to them. The guardianship or custody of children whose parents are divorced usually falls to the ex-spouse, as long as he or she is the biological parent. However, in the case of that individual being unable or unwilling to care for the children, then another guardian would be appointed by the court. Nominating a guardian in a Will would allow you to have a say in who should take care of your children.
Problems with Outright Distribution of Assets
Another concern is the management of the minor children’s inheritance. When assets are distributed outright to minor children being cared for by an ex-spouse, the ex-spouse may have control over how the inheritance is managed. Similarly, if a step-parent has been appointed as the guardian, then he or she has authority to manage the inheritance of the children. In either case, your wishes regarding your children’s inheritance may not be followed. However, your minor children cannot be expected to manage their own money at such a young age. So what’s the solution? Holding assets in Trust with a Successor Trustee to manage those assets, instead of outright distribution, ensures that your children’s inheritance is handled fairly and distributed in exact accordance with your wishes.
As mentioned before, if you die without an Estate plan, your Estate will be subject to the intestacy laws of Vermont and go through Probate court. The division and distribution of your Estate will be subject to a predetermined formula, usually providing half of your Estate to your new spouse, and the remaining half being allocated in equal portions to your biological children. For many parents in blended families, the state’s distribution plan is worlds apart from how they would have chosen to distribute their assets themselves.
For example, if your blended family includes your spouse’s children from a prior marriage, whom you have raised, but never formally adopted, this formula would not provide an inheritance for them. Similarly, if you have adult children from a prior marriage and minor children with your new spouse, you may want to provide more financial support to your minor children than provided by state guidelines.
Ownership of Property
When it comes to ownership of property, most married couples are joint owners of all of their assets. However, with blended families, this may not be the wisest choice. If you’ve remarried and established joint ownership of property with your new spouse, you may be unintentionally disinheriting your children from a prior marriage. In the event that you pre-decease your new spouse, they will get the ultimate say in who inherits your jointly-owned property or if your new spouse dies intestate, the state will decide for them. This could very likely result in those assets being inherited exclusively by your new spouses’ children from their prior marriage – completely disinheriting your children. A proper Estate plan can help address matters of property ownership among blended families and ensure that your children’s inheritance is preserved.
Each blended family is unique, and similarly, each couple has its own set of goals to accomplish. Preserving the relationships between the step-parent and the step-children after the death of the parent and spouse is usually one of those goals. Proper Estate Planning can tailor a solution to help meet those goals.
Choosing a Guardian
Guardians of minor children are “nominated” in the Will by the last parent to die. Guardians are typically “nominated” rather than appointed because the courts will give preference to the nomination but are not bound by it. If a court determines that the best interest of the child would be better served by another choice, they need not heed your suggestion. While the nomination of a guardian is not a guarantee, it does allow you to give the court guidance, which it will use to make its determination. If all other things are equal, the court will follow the direction of the Will.
Nominating a guardian for your children is the most important – and, in many cases, the most challenging – part of the Estate Planning process. Here are some factors that you should consider when choosing a guardian:
You need to consider both the age of your children and the age of the potential guardian. If your kids are young, you need to select someone who will be emotionally and physically able to care for them in the long-term. While a grandparent may have the best emotional connection, they may not be able to make the kind of commitment necessary to raise your children to adulthood. On the other hand, it is also possible to choose a guardian that is too young to handle such a large responsibility. Therefore, it is important to consider both the age and emotional maturity of your guardian candidates.
Parenting Style, Religion, and Values
Every parent has differing opinions on discipline, education, and other issues, even curfew times. Therefore, it is vital that you consider these issues when choosing a guardian. Ask yourself what is most important to you in terms of values and religion, and then assess whether the guardian you have in mind shares those views. If you are unsure, ask them. You might be surprised by their answers.
Stage of Life
Think about the stages of life your potential guardians are in. Are they married or single? Are they likely to get married or divorced? Do they have their own children, and if so, are yours likely to fit in? If they are single now, is a future spouse going to be supportive of their guardianship? What about their career? Are they married to their job, or close to retirement? All of these factors will have a tremendous impact on your children’s lives, so take your time and choose carefully.
Sometimes we underestimate the effect of a location on our everyday lives. But, where a child grows up has an enormous influence on the person they become later in life. Things like neighborhoods, school systems, and nearby relatives seem like obvious variables when thinking about the location of a potential guardian. But what about less obvious factors, like climate? Moving from a warm climate to a cold one, or vice-versa, can be a big adjustment for a child. Lastly, it is important to weigh the likelihood of frequent changes in location. Will the guardian have recurrent moves or job changes? In some cases, this is impossible to predict, but nevertheless helpful to consider.
It is not necessary for your chosen guardian to be a blood relative, but it’s best if they are at least familiar to your children. If you have never seen this person interact with your kids, how will you know what kind of parental role this person would play with your kids? It would be much easier for both the guardian and your children to grieve and adjust if they already had a good relationship with each other. Obviously, in rare cases, it is necessary to choose a person who is distant from your family. This option should be exercised only as a last resort. It is important to note that even if your children are particularly close to one aunt, uncle, or friend, remember that this person would potentially fill the role of parent, not best friend. So be sure to keep all of the other considerations in mind as well.
Speak to all of your guardian candidates before you make a decision. After all, having to assume a guardianship is a life-changing responsibility, and not to be undertaken lightly. In reality, it’s unlikely that your chosen guardian will need to fulfill that role but it is important to secure their consent before naming them.
Financial Position and Responsibility
An important part of the Estate Planning process is making sure that your loved ones are provided for financially. Ask yourself whether your chosen guardian is financially stable enough to raise a family. Do they have problems managing money? What are their spending habits? If you have doubts about their abilities to manage finances, but you are convinced that they would make the best guardian for your children, you may want to consider talking to a qualified attorney about trust provisions that can make this easier.
In addition to discussing your wishes with your chosen guardian, it is recommended that you and your partner write letters of intent for your children. These letters can vary significantly, but most people use the opportunity to describe their expectations and hopes for their kids. A letter can be a much more comfortable format for expressing these desires than a verbal discussion, and it also serves as a permanent record. It is recommended that individuals update their letters of intent yearly or bi-yearly as their circumstances evolve.
Whether you have several guardians in mind or just one, it is vital that you weigh each and every variable to determine if he or she is the right person to care for your most valued treasures: your children.
The first step in designing your Estate Plan is to attend one of our FREE Webinars. We encourage you to attend these Webinars so that you can learn more about what Estate Plan may be best for you and our firm can help. To register for one of our upcoming webinars please click here.