Covid 19 and Minor Children – Things to Consider Now

It's important to have a plan in place to take care of your minor children, if you are unable to do so yourself.
It’s important to have a plan in place to take care of your minor children, if you are unable to do so yourself.

Protecting your family is important, especially when you have minor children, and even more so now that we are living through a pandemic. With all of the unknowns of our current situation, you need some certainty. Having an up-to-date estate plan can be the first step toward providing that certainty in an uncertain world.

Many people view estate planning as limited to making arrangements for your death. However, it is equally important to plan for a time when you may still be alive but unable to care for yourself or your minor children.

Addressing the financial needs of you and your minor child

A revocable living trust can be a great solution for managing your and your minor child’s financial needs during incapacity. This planning tool enables you to name yourself as the trustee (the person or institution charged with managing, investing, and handing out the money and property) and allows you to continue exercising control over the money and property you transferred to the trust. The accounts and property are transferred to the trust when you change the legal ownership from you as an individual to you as the trustee of the trust. A trust also allows you to name a co-trustee or an alternate trustee to seamlessly step in, without court involvement, and manage the trust’s money and property for your benefit and the benefit of any other beneficiaries you have named in your trust if you become too ill to do it yourself.

In addition, when using a trust, you can specify when and how the funds should be used for your minor child’s benefit. You can provide instructions for certain expenses to be paid during a period of incapacity to ensure that your minor child is still being provided for in the same way you would provide for your child. Additionally, you can include a plan for how the money will be used upon your death for your child’s benefit. You can also state a time frame for when you think your child would be ready to manage his or her inheritance. Until the child reaches that age, the child’s inheritance will be managed by the trustee you choose. It’s important that you provide your child’s trustee with guidelines on what is important to you in terms of taking care of your child financially. If you leave your child’s inheritance to your child in a trust, the funds will be better protected from any future creditors or a divorcing spouse that your child may have.

An added benefit of utilizing a trust as part of your estate plan is avoiding the time-consuming and often expensive probate process that would otherwise be required. As long as you properly transfer your accounts and property to the trust, or make arrangements for the trust to be named beneficiary of your assets at your death, you will save your loved ones precious time and money during an emotional period.

Caring for your minor child

When planning for minor children, it is also important to consider who will physically care for them if you are unable to. If your minor child’s other legal parent is still alive and able to care for the child, the other parent will continue to provide care or will assume the day-to-day responsibilities of the caregiver. Nevertheless, it is a good idea to plan for what will happen if both of you are unable to care for the minor child, just in case. If you are the only living parent, or if the other legal parent is unfit to care for your child, however, it is crucial that you make the proper arrangements. While most people are familiar with the idea of naming a guardian for a minor child in a last will and testament, this document does not become effective until your death. Therefore, to properly plan for your minor child’s care during your incapacity, you need to consider naming a guardian in a separate writing.

Providing for your minor child’s care and financial security is an important undertaking with many important questions to consider. An estate planning attorney can guide you in making those crucial decisions and can put together a plan that will see that your wishes are carried out.

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How Grandparents Can Help Pay For College

Grandparents wanting to help pay for a grandchild's education may with to consider a 529 Plan.
Grandparents wanting to help pay for a grandchild’s education may with to consider a 529 Plan.

If you are a grandparent wondering how you can help pay for a grandchild’s future college education, you may wish to consider a Qualified Tuition Plan under IRC Section 529, otherwise known as a 529 plan.

Forbes’ recent article entitled “Estate Planning Primer: Qualified Tuition Plans” explains that there are two kinds of 529 programs that can help pay for college (and some other education expenses): prepaid plans and savings plans. The earnings on the assets in the 529 plan aren’t taxed, until the funds are distributed. The distributions are also tax-free up to the amount of the student’s “qualified higher education expenses.”

One kind of 529 plan is known as a prepaid plan. With this plan you buy tuition credits at the current tuition rates, even though your grandchild may not be starting college for several years. Because the cost of a college education rises every year, there is a substantial benefit to being able to lock in the cost at today’s rate.

The other kind of 529 plan is a savings plan. Even though the earnings in the plan are tax deferred and, to the extent used for qualified higher education expenses, tax-free, the amount available to pay the college costs depends on the investment performance of the plan. The more the funds in the plan grow, the more education costs can be covered. But if the value of the plan declines, fewer education costs will be covered.

Qualified higher education expenses include tuition, fees, books, supplies, and required equipment. Reasonable room and board may be considered a qualified expense, if the student is enrolled at least half-time. Distributions of income from the 529 plan in excess of qualified expenses are taxed to the student, and may result in 10% penalty.

You would designate you grandchild as beneficiary of the 529 plan at the time you create it. However, you are able to change the beneficiary or roll over the funds in the plan to another plan for the same or a different beneficiary.

A 529 plan may be used to fund a grandchild’s education at any college, university, vocational school, or other post-secondary school eligible to participate in a student aid program of the Department of Education.

Any funds you contribute to the 529 plan will be treated as gifts to your grandchild; however they qualify for the annual gift tax exclusion ($15,000 per person per year for 2020) adjusted annually for inflation. If you contribute more than the annual exclusion amount in a given year, you can elect to have the gift treated as being made over a five-year period starting with the year of the contribution.

While you may name yourself as custodian of the 529 plan, it is important to also designate a successor custodian, perhaps a parent of a grandchild, in the event you are not able to act as custodian.

Reference: Forbes (Aug. 5, 2020) “Estate Planning Primer: Qualified Tuition Plans”

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Estate Planning and National Disaster Preparedness Month

National Disaster Preparedness Month reminds us to make sure our estate planning is up to date.
National Disaster Preparedness Month reminds us to make sure our estate planning is up to date.

The unpredictable can occur at any time: fires, hurricanes, floods, earthquakes, pandemics—you name it. Because September is National Disaster Preparedness Month, we want you to be prepared for whatever life throws at you. Although none of us can predict the future, there are some things you can do through proper estate planning to ensure that you and your family are ready. Here are a few questions to consider to help protect the people and possessions you value most.

 

  • Are your documents secure? When trouble occurs, your documents must be ready. It is therefore critical that your important legal documents be kept secure in a weatherproof safe or container. Likewise, documents regarding property ownership and identity should be stored away from exposure to dangerous elements such as fire, floods, and wind. When the dust settles, you will need your important paperwork and legal documents to help get you through difficult times.
  • Are your documents up to date? Consider whether your estate planning documents reflect your reality. One unfortunate but common mistake is the failure to keep important documents current. People often forget to periodically review and update their documents after receiving them. As a result, outdated estate planning documents frequently cause confusion because they describe a situation that is no longer applicable.
  • Do people know where to find your documents? As you try to prepare for the unpredictable, making your important documents accessible is crucial. Having plans in place are of little value if no one can find them. There are a number of ways you can provide accessibility without significantly impacting security. A simple option is to keep the original documents in your home in a location you have disclosed to another family member, and keep a copy of the documents at a location other than your home in case your home is inaccessible. You can also utilize technology to help provide accessibility by having digital copies available to you regardless of where you may be.
  • Is your insurance adequate and current? Insurance is a tool that must be monitored and maintained as your family and wealth change. In preparing for the unexpected, review your insurance policy to make sure it adequately covers you, your family, and your possessions in the event of a crisis. If you have previously witnessed natural disasters or emergencies, these experiences can provide valuable insight to help you ensure that your policies will protect you against the recurrence of these events. For example, because many of us who live in Texas have been negatively impacted by recent hurricanes and flooding, now may be the time to better understand, update, or upgrade their flood insurance.
  • Should you have a rider on your existing insurance policy? You may not be familiar with insurance riders, but incorporating riders allows you to customize and maximize your protection. Insurance riders provide additional flexibility and features to your current insurance policy with options that provide various levels of value depending upon your lifestyle and needs. For example, many policies offer a “waiver of premium” rider that creates a mechanism for continued payment of insurance premiums in the event you become disabled and are no longer able to make the payments. This means that your insurance coverage will not lapse due to your disability. Exploring the available rider options can ensure that you have customized a plan into something that works for you and your unique situation.

Disasters and emergencies are inevitable. National Disaster Preparedness Month reminds us that we can plan for any number of potential events, but we cannot always predict when or how they will impact us. By proactively asking yourself these questions, you will be better positioned to remain calm and focused in the midst of a crisis.

Learn more about updating your estate plan at https://www.galliganmanning.com/when-to-update-your-estate-plan/.

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