How will you protect your family’s future?
Everyone wants to provide for their children during their lifetime, but you also want to leave them with the fruits of your labor and achievements when you pass away. The easiest way to do this is by naming them as beneficiaries in your Will and naming someone or a couple as guardians if you pass away while they are still minors. But you should also consider establishing a Trust in conjunction with the Will.
Why a Will?
If you pass away without a Will, your real and personal property are subject to being distributed according to the Wisconsin laws of intestate succession. This means that a court will name an executor of your estate and distribute property that you own. Generally, if you leave a spouse and no children or only children of the marriage or relationship, your spouse will receive all your property. If you leave children from a prior marriage and a surviving spouse, those children will also receive a share. If no spouse survives you, then all assets go to your children in equal shares, which may or may not match with what your intent would have been.
A Will can express your intent on how you want your property distributed and to whom. It will have to go through probate, however, which can take several months or longer in some cases.
More importantly, if no parent survives the minor children and you do not have a Will, the court will appoint a guardian. There is no guarantee that this would be the person you would have chosen if you had the chance. The most important thing to do in the Will is appointing a guardian for your children in the event your spouse or the other parent has passed while the children are still minors. A guardian will not only care for your children but also for the property that they have inherited from you since the law will not allow for minor children to assume control of property acquired through inheritance.
The guardian is instructed to manage the assets to pay for the children’s living, educational and medical expenses and to invest them wisely. When the children turn 18, the assets are turned over to them, although your Will can specify that a custodial account is set up until the age of 21.
If your estate is valued at less than $50,000, you can bypass or fast-track the process in a simplified probate procedure.
You may, however, wish to consider a trust for your children.
Benefits of a Trust
There are many different types of trusts, which can be either revocable or irrevocable. If revocable, it can be changed during your lifetime. On your death, it becomes irrevocable. You can also set up an irrevocable trust during your lifetime if you wish.
A revocable trust is one where you can name yourself as trustee so that you are able to control what funds or property go into and out of it. You also need to name a successor trustee for after you pass away. As a benefit to you, the trust can allow your successor to take over should you become incapacitated.
Depending on the type of trust, a trust may be beneficial for several reasons:
- You avoid probate and the costs and time involved.
- The assets are not subject to being seized by creditors.
- It is not a part of the public record like a Will.
- Trusts are more difficult to contest or challenge than a Will.
- The trust can identify the time for when the assets are to be distributed to your children.
- The assets are not part of the child’s estate and are not considered when estate taxes are possible.
Trusts are not for every estate plan. They cost money to maintain, and there are tax consequences since a trust needs to file a separate tax return. It can also affect your child’s eligibility for financial aid such as for tuition assistance if this becomes an issue. Whether to include a trust in your estate plan should be discussed with your estate planning attorney.
Types of Trusts
When establishing a trust for your children, there are a number of trusts to consider.
The simplest way to establish a trust for your children is to establish a Trust in your Will. This is called a testamentary trust and becomes effective after your death. If you are concerned about the child’s maturity or ability to exercise sound judgment when suddenly being provided a substantial inheritance, then a trust can control the funds by appointing a trustee who will have full authority on how the funds will be distributed and used. Such a Trust will ensure assets are held until your children are mature enough to handle their funds. However, probate will not be avoided through this type of trust.
A trust for your children can also be set up through a Revocable Living Trust. This will also ensure that funds are held in trust until your children are more mature, and it will permit you to avoid probate.
If you have a special needs child, a special needs trust can provide additional funds for the child’s enjoyment and not jeopardize the child’s eligibility for public benefits since public benefits are conditioned on the income received and assets possessed by the child.
Questions to ask yourself
To help you get started, consider the following questions. Some of these questions may be difficult to answer, and an attorney can help guide the discussion if you get stuck:
- If you were no longer here, who would you trust to be the guardian for your children?
- If you named a couple as guardian, what if they divorced or one of those individuals died?
- Who would be the backup guardian?
- Who would you trust to invest your children’s funds?
- Who would you trust to make decisions on expenses for your children?
- When will your children be mature enough to receive their inheritance?
- Should the distribution be split into two distributions, e.g.g half at age 25, balance at age 30, to teach your children the value of money over time?
- Do any of your children have special circumstances that need to be addressed, such as disabilities, money problems, poor decision-making, spouses, children of their own, or anything else?
- Are any of your children likely to challenge the documents?
Any estate plan should be drafted by an attorney, even one as simple as a Will-based estate plan. There can be changes in your life that can complicate your planning, such as divorce, remarriage, children from different relationships, a special needs child, or other considerations. Having an estate planning attorney discuss your goals with you and keep abreast of the changed circumstances in your life will ensure that your intentions will be met.