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Planning
Today for Today's LifeStyle.
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Do you have any minor children (i.e. under age 18 in most states)? If you
do, then your calendar is likely filled to overflowing with their school
commitments and extra-curricular activities. Besides time, all of these
commitments and activities require money…and lots of it. Since your
children are worth the investment of both your time and your money, what
plans have you made for them in a world without you? What would happen if
your children were orphaned today?
Back-up
Parents
Who would you entrust with the responsibility of
rearing your minor children to adulthood? By default, any surviving parent
will be the legal guardian (i.e. back-up parent) over your minor children.
However, in the event there is no surviving parent, you must legally
appoint the guardians of your own choosing or a court will make the
appointment for you. When selecting guardians, most parents appoint family
members or friends with whom they share common principles, values and
religious beliefs. [Note: It is prudent to get permission from your
intended appointees and appoint alternates should they ever be unwilling
or unable to serve.]
Inheritance Managers
As with
guardians for your minor children, unless you legally appoint the
inheritance managers of your own selection, a court will make the
appointment for you. Accordingly, you should legally appoint them because
a court would likely appoint the guardian to serve as the inheritance
manager, too. Very few divorced parents want their ex-spouses to manage
the inheritance left to their minor children. Common candidates for this
role include trusted family members or friends, professional inheritance
managers (i.e. trust companies), or combinations of the two. [Note: As
with guardians, you should obtain the permission of your prospective
inheritance managers prior to their appointment and even appoint a
successor.]
Common Concerns
Once you have appointed appropriate inheritance
managers, you still need to protect the inheritance both for and from your
children. There are three common concerns that can be hazardous to your
wealth. First, the divorce rate has never been higher and blended families
today outnumber original nuclear families. Second, lawsuits and
bankruptcies are setting new records. Last, but not least,
ambition-killing affluenza is always a concern whenever someone inherits
wealth for which they did not personally work. Depending on how the
inheritance is left to your children, it can either be a blessing or a
curse.
Without proper Life & Estate Planning, your
children will receive their full inheritance upon reaching legal adulthood
(i.e. upon reaching age 18 in most states). Will their inheritance be
taken by a subsequent divorce, lawsuit or bankruptcy? Will it be converted
into fast cars and extravagant trips, rather than college educations,
first homes and seed money for a small business?
Because of these concerns, some parents create
plans that distribute the inheritance outright once their children gain
some life experience and maturity. For example, they may direct that
one-half of the inheritance is distributed at age 25 with the balance
distributed at age 30. While this is better than a full, outright
distribution upon reaching legal adulthood, it does not offer the maximum
inheritance protection available by law. In addition, an outright
distribution, whether made upon reaching legal adulthood or at any point
thereafter, can have some undesirable, unintended consequences. For
example, if you are divorced and your child receives their inheritance and
subsequently dies without any surviving spouse or children, who inherits
through your child? The correct answer: their surviving parent (i.e. your
ex-spouse)!
The
greatest inheritance protection is achieved when your Life & Estate
Plan creates a Long-Term Discretionary Trust to administer the inheritance
for your children. Such an arrangement can make both income and principal
available to your children for their health, education, maintenance and
support, as well as for any purpose deemed appropriate in the discretion
of your appointed inheritance managers. Properly drafted, a Long-Term
Discretionary Trust may serve as a Life & Estate Plan within a Life
& Estate Plan. How? Upon the death of your children, the inheritance
can continue for their own children. If they have no children, then the
inheritance can continue for their siblings…without any unintended
consequences.
Conclusion
This has
been a brief introduction to a complex topic. Always seek qualified legal
counsel when planning for the personal and financial well-being of your
minor children.
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