Author: Michele Braverman

Important Planning Points to Cover with Parents

Life can get hectic for parents when the school year starts. Parents often juggle many different responsibilities, which increase with the number of children they have and activities the children participate in. Most parents feel like they need to be in five places at once! 

It may feel difficult to motivate clients that are parents of minor children to establish a comprehensive estate plan because they feel pulled in so many directions; however, they are a market that need an estate plan. You can educate these clients that a lack of proper planning can result in their children and loved ones being forced to go through complex and emotionally draining legal processes that can easily be avoided.  

Begin the discussion.

As a trusted advisor, you are in a unique position to discuss important aspects of your clients’ lives that they may not feel comfortable discussing otherwise. Most clients with minor children are busy making important day-to-day decisions about their children’s lives, but may have not taken the time to consider what would happen if they were no longer around to make those decisions for their children. 

What will happen at their death?

Speaking with your clients about what would happen if they were no longer living can be a difficult conversation, but you should emphasize to them that they should be proactive in planning so that they can make decisions about who would raise their children and how they should be raised. Every parent has beliefs and values that are important to them, and putting a plan in place can ensure that their children are raised in a way that emphasizes both. 

What are your client’s goals?

As part of your planning process, you have likely already spent time discussing your client’s long-term financial goals. Your clients should not only be considering retirement, but also how to best structure their finances to ensure that their children will continue to be raised how your clients want in the event of their deaths. It is impossible to predict the future or how long we will live, however, you can help your clients develop a plan by calculating the costs of providing for their children at their death under multiple scenarios. This process may begin by asking your clients questions about what they envision for their children, such as whether they want their children to have a private education, attend college, or start a business. As an advisor, you can provide your clients with the financial tools and strategies to develop a plan to make their vision for their children’s future a reality.  

Every client needs a plan.

It is not uncommon for clients to come into your office without an estate plan. Most clients do not start the planning process until they experience losing a loved one. It is important to encourage your clients to connect with a qualified estate planning attorney who can assist them to ensure that the financial plan you have created for them is accompanied by a comprehensive set of estate planning documents to implement and maintain said plan. There will be the clients who have established an estate plan prior to meeting with you; when dealing with these types of clients, it is always beneficial to remind them that their plan should be reviewed regularly to ensure it still serves the purpose it was established for. We would love the opportunity to assist your clients in creating or reviewing their estate plan. 

Not all children are responsible enough to handle a large lump sum inheritance at age eighteen without some guidance. Most children would be tempted to spend it all on fast cars, designer clothes, lavish vacations, or maybe even to quit their job. It is important to educate your clients on the options available to them when it comes to leaving an inheritance to their children. 

How a Continuing Trust Works

A continuing trust is a great option for clients to ensure that the money they worked so hard for lasts to provide their children with the future they envision. A continuing trust holds money for a specific period of time and does not distribute it outright. This type of trust can allow for small distributions when a child reaches certain ages, and then distribute the remainder at a specified age, or continue indefinitely. You should speak with clients to help them decide the ages and amounts that would be appropriate to disburse to their children. The specifics will largely depend on what clients want their children to use the funds for and whether any special circumstances affect their children. 

1. Protecting Minor Children

Continuing trusts can be particularly beneficial for situations in which a child may inherit funds or property while they are a minor. Minor children are unable to own property or inherit an amount over $15,000 in many jurisdictions. If children are set to receive more than $15,000, most states require that a conservatorship or guardianship be put in place until the child reaches the age of majority (eighteen or twenty-one depending on the state). This court process requires additional fees and court filings for the duration of the guardianship or conservatorship. And ultimately, the child would still receive a large lump sum when they turn eighteen or twenty-one (when they may still be immature). Establishing a continuing trust prevents the need for a conservatorship or court-monitored guardianship. 

1. Other Ways a Continuing Trust Can Help

Continuing trusts can also be beneficial in other circumstances. They can help preserve money for adult children who are financially irresponsible and tend to exercise poor judgment when it comes to spending. They can also protect children who suffer from addiction from having a lump sum given to them that could be used to fuel their addiction. Additionally, this type of trust may protect money and property from lawsuits if a child works in a high-risk occupation. 

1. Potential Issues with a Continuing Trust

Continuing trusts provide a lot of benefits, but they can be problematic if not drafted properly. There may be a circumstance in which a child needs a large sum of money that the client would have otherwise given, but without the proper authorization in the trust document, the trustee may be reluctant to make the distribution. Additionally, if a child requires government aid, these trusts may disqualify them if the trust does not contain specific language and provisions to enable the benefits to be preserved. 

Trusts Can Be Expensive

When counseling clients on the use of continuing trusts, it is important to let them know that in most cases, managing a trust costs money. The amount that it will cost can be quite substantial depending on how long the trust exists. The most common expenses associated with continuing trusts are trustee fees and income taxes. Both should be considered by your clients when determining how long they would like the trust to remain in existence for. There can be provisions that can give the trustee authority to dissolve the trust if it becomes financially impractical to maintain or if the original purpose of the trust is no longer applicable. 

Choosing the Right Trustee Is Crucial

Another important consideration of continuing trusts is that managing a trust takes time. These types of trusts are created to last for a long time and require a trustee who has the time to dedicate to the proper management of the trust. One of the more difficult decisions that clients must make is choosing who should serve as trustee. There are many considerations that go into trustee selection, and the following questions should be asked: How old is the successor trustee? Does this person have the time and capacity to manage a trust? Will selecting this person put them in a position where it could strain their relationship with the beneficiary? Some clients feel it would be better to select an entity rather than a family member; they should ask the following questions: How accessible is this institution? Will they be in business long enough? Is there a minimum trust value requirement? What fees do they charge for management?  

If you are interested in learning more about continuing trusts and how you can discuss them with your clients, feel free to call us to set up a meeting.

There are certain reasons that establishing an estate plan can be of the utmost importance. Having minor children or grandchildren is one of those reasons. Most parents do not have time to keep up with their own tasks, let alone consider what would happen if they died while their children were still minors, but having a comprehensive plan in place for their children is very important. You can motivate your clients by letting them know that a well thought-out and carefully drafted plan can last over eighteen years. Most parents have carefully considered what values they want to instill upon their children, but what many parents may not realize is that establishing a trust can allow them to essentially parent from beyond the grave. In addition, grandparents may want to provide a lasting gift to their grandchildren, but may be unsure of how to make a gift that truly has a lasting impact. Trusts are not a “one size fits all” planning method—in fact, there are different forms of trusts that can help your clients accomplish a variety of goals. 

1. Health and Education Exclusion Trust

Every parent wants to provide their child with opportunities, and grandparents also find great value in contributing to the success of their grandchildren. Education is often a major stepping stone to bigger opportunities. Many times, grandparents will tell their children that they want to leave funds for their grandchildren’s education. Your clients and their parents may be unaware of a health and education exclusion trust (HEET). A HEET could be ideal for clients who want to mitigate financial burdens on their loved ones caused by the rise in tuition and health care. These trusts allow grandparents to set aside funds to be used for their grandchildren’s and other distant descendant’s health and/or education expenses. Your clients will not directly benefit from these trusts, but they receive the ultimate peace of mind in having the trust cover their children’s educational and health care costs. 

HEETs can pay for tuition costs at any education level. These trusts can be particularly beneficial for high net worth grandparents, as they can serve the dual purpose of adding a charity as a beneficiary. Additionally, grandparents can avoid generation-skipping transfer (GST) tax liability on funds transferred to the trust. Further GST (and gift tax) liability can be avoided on funds disbursed as qualified transfers. This is also an opportunity to reduce a grandparent’s taxable estate and therefore save on or avoid estate taxes. Qualified transfers are defined as funds that are transferred directly from the trust to the educational institution or medical provider. 

1. Incentive Trusts

How likely are children to go out of their way to do the dishes, walk the dog, clean their room, or cook dinner? How much does the likelihood increase if they are offered money for completing these tasks? Most parents would agree that incentivizing young children works like magic. How surprised would your clients be to learn that, even if they were not around, they could continue to guide and motivate their children by incentivizing them from beyond the grave? 

Incentive trusts are becoming a popular choice for parents of young children that want their children to achieve certain goals in life. Incentive trusts provide parents with the flexibility to set goals and appropriate rewards through distributions once a child reaches the goal. Parents can set multiple and separate goals for each child. 

There are a variety of goals that can be addressed with incentive trusts. Some of the more common goals are achieving a higher education, receiving good grades, starting a business, and maintaining a paying job. As you can imagine, these goals are best defined by a parent who knows their children’s abilities and limitations. 

Asking your client to imagine not being a part of their young children’s lives can be difficult. However, incentive trusts can offer their children guidance and support if the parents are unable. 

1. Beneficiary-Controlled Trust 

You may have clients that feel that their children are financially responsible and exercise good judgment, and they would like to avoid giving another individual control of the money they leave. Even with strong financial management skills, the money left to children is still vulnerable to creditors’ claims, divorce, lawsuits, or estate taxes. By using a beneficiary-controlled trust, these risks can be reduced while allowing the child some control over their own trust. A beneficiary-controlled trust is much like it sounds, in that a trust can be established for a beneficiary, who can also serve as the sole trustee or a co-trustee. 

These trusts grant the beneficiary a considerable amount of control over their inheritance while still allowing parents to place certain restrictions on its use. When a beneficiary acts as sole trustee, they can be allowed to make distributions based on an ascertainable standard—for example, distributions for the beneficiary’s health, education, maintenance, and support (HEMS). In circumstances in which the beneficiary acts as sole trustee, under many states’ laws, most creditors cannot reach the beneficiary’s interest or compel a distribution when the trust contains the HEMS standard. However, once a distribution has been made to the beneficiary, it may be susceptible to the beneficiary’s creditors. 

A beneficiary-controlled trust may be ideal for clients who want to save on administration costs, because the costs of administration are often reduced when the beneficiary serves as sole trustee. 

It is important to tell your clients that while there are many ways to establish trusts, the best way for them to ascertain which structure best addresses their goals is to work with a qualified estate planning attorney. 

Just as spending a day under the summer sun without proper protection can leave you with a painful sunburn, a poorly crafted or out-of-date estate plan can inflict harm on your clients and their loved ones. In this newsletter, we explore the importance of creating a comprehensive estate plan to protect your client’s legacy and ensure a smooth transition to future generations. 

Why Your Client’s Relationship with Their Parents and Children Is Important

Your client’s relationship with their parents and with their own children is important for several reasons, including developing an effective estate plan. Simply maintaining a loving relationship with a parent does not necessarily guarantee inheritance rights. A legal right to inherit depends largely on the legal relationship between a child and that child’s parent, the existence of a valid estate plan, or if no estate plan exists, the applicable laws of intestacy in a given jurisdiction. Generally, children can inherit from their parents whether their parents are biological or adoptive, but in most jurisdictions, there is no legal right for a child to inherit unless they are a minor or it can be shown that they were accidentally left out of a parent’s estate plan. In some jurisdictions, if there is no estate plan, a child may be entitled to a percentage of the parent’s estate. 

Any discussion with your client about estate planning concerns should include a review of the legal relationship between parents and children. In what manner is your client a “child” of their parents? Are your client’s children their biological children? Or are they legally adopted? Are they stepchildren? Or is their relationship something else altogether?

When it comes to a child’s legal ability to inherit from parents, there is no difference between adopted children and biological children—they are considered equal in the eyes of the law. However, situations involving stepchildren or presumed parents can be more complicated. 

Stepparents. A stepparent is typically someone who is married to or in a civil partnership with one of the biological parents of a child. With few exceptions, stepparents have no legal obligation to provide any legacy to a stepchild or stepchildren. And unless they were legally adopted, stepchildren have no legal right to expect an inheritance from their stepparent. The ability of stepchildren to inherit from stepparents can depend on the laws of the jurisdiction where the parents are located and that jurisdiction’s laws of intestacy. Stepparents can choose to provide for stepchildren in their estate plan, and in that case, the stepchildren would benefit in the same manner as any other beneficiary. If a stepchild is included in a stepparent’s estate plan under their will or trust, that stepchild can inherit money or property in the same manner as your client’s biological or adopted children under the same instrument. However, if there is no provision made for stepchildren under your client’s estate plan, they will likely not be entitled to any share of your client’s estate.

Presumed parents. In some cases, a person may be considered a presumed parent, which means that they are legally recognized as the parent of a child, even if they are not the biological or adoptive parent. Legal recognition for presumed parents is based on public policy that certain individuals should be treated as parents because of their relationship with a child and the role they assume in that child’s life. 

The criteria for being a presumed parent can vary by jurisdiction, but they often include the following: 

1. Biological connection. In some jurisdictions, a person who is the biological parent of a child is automatically considered a presumed parent, regardless of their marital or relationship status.
2. Birth or adoptive parent. A person who has legally adopted the child (with their consent) or given birth to the child is considered a presumed parent.
3. Marriage or domestic partnership. If a person is married to or in a legally recognized domestic partnership with the child’s biological or adoptive parent at the time of the child’s birth or conception, they may be presumed to be a parent.
4. Intent to parent. If an individual openly and actively takes on the role of a parent and demonstrates their intent to parent the child, they may be considered a presumed parent. This can include factors such as receiving the child into their home, providing financial support, making important decisions regarding the child’s upbringing, and establishing a parent-child relationship.
5. Length of time and stability. The length of time the person has been involved in the child’s life and the stability of their relationship with the child may be considered when determining presumed parenthood. 

The relationship between a parent and child can take many forms. It is therefore important that you discuss with your clients the need to have an estate plan that clearly identifies their intended beneficiaries and the legal relationship of those beneficiaries to your client. Your discussion should also examine relationships with any individuals who may not be immediate or obvious family members. Your client will appreciate your thoroughness, and you can rest assured that your client’s wishes regarding inheritance will be clear and properly documented so they can be legally enforced.

As summer approaches and open waters beckon, it is important to consider a unique aspect of estate planning that can often be overlooked by your clients—their boats and watercrafts. These vessels bring your clients joy and unforgettable memories, but they also warrant special attention when it comes to safeguarding your clients’ legacies as part of a comprehensive estate plan. 

There are several estate planning strategies that can be tailored specifically to boats and other vessels or personal watercraft. By implementing these strategies, your clients can ensure a seamless transition of ownership, mitigate potential tax burdens, avoid family squabbles, and pave the way for future generations to enjoy the pleasures of being out on the open water.

One planning strategy is to use a trust structure for boat ownership. Setting up a trust can enable your client to maintain control over their boats while simplifying the transfer process. A revocable living trust allows clients to retain enjoyment during their lifetime while designating beneficiaries who will inherit the boats upon their passing. This approach helps bypass probate, ensuring a smoother transition for managing and distributing the boat after your client’s passing and potentially minimizing costs. It is important to note, however, that holding a boat in a trust may not be ideal from a liability perspective. In case of accidents or damages that result in injury or death, trial lawyers may try to pursue damages beyond liability insurance coverage limits based solely on the fact that the boat is owned by a trust. Additionally, transferring the boat to a trust could potentially incur state or local taxes at the transfer and may increase insurance premiums.

Another planning strategy involves gifting and lifetime transfers by your client. For clients who wish to pass on their boats during their lifetime, gifting or lifetime transfers can be viable options. By transferring ownership of a boat to family members or loved ones, your client can experience firsthand the joy of gifting them while also potentially reducing estate taxes by removing the boat from their taxable estate. The downsides to this approach are that your client may need to file a gift tax return, the boat may become subject to the gift recipient’s creditors, and your client will not have any further control over the boat once the gift is completed.

A third planning strategy that is becoming more popular with boat owners is the use of a limited liability company (LLC). Establishing an LLC can offer significant benefits when it comes to managing and transferring boat ownership. By placing a boat into an LLC, your client could use a trust to own the membership interest in the LLC. This approach may provide personal liability protection by separating the boat’s ownership from personal accounts and property. However, it is essential to understand not only how changing ownership will impact insurance premiums but also any other legal and financial considerations specific to your client’s jurisdiction. For example, securing adequate insurance coverage is essential for your client to protect their boat and ensure a smooth transition in the event of an unexpected loss. 

Whichever planning strategy your clients employ, it is important to remember that each client’s situation is unique, so they should work closely with a qualified estate planning professional who can tailor these strategies to their specific needs and goals. By proactively addressing the complexities of boat ownership in a client’s estate plan, you can help them sail through life’s adventures with peace of mind.

Friction between family members can escalate during a scorching summer heatwave. Likewise, a flawed estate plan has the potential to breed conflict, mistrust, and financial turmoil among your client’s beneficiaries in several ways.

Lack of a plan. If your client fails to create an estate plan altogether, it can lead to significant disputes and confusion among their family members. Without clear instructions, loved ones could argue over what the client’s intentions were, and state laws will dictate the distribution of accounts and property in a manner that could be inconsistent with your client’s wishes. This can result in some individuals feeling left out or receiving less than they anticipated.

Vague or generic plan. If your client’s estate plan lacks specificity or fails to address important questions, it can open the door for interpretation and disagreement among your client’s beneficiaries. Detailed instructions and provisions in the plan can help prevent disputes and provide clarity as to how your client prefers different situations to be handled. Without clear instructions, disputes may arise regarding distribution of the client’s accounts and property, guardianship of minor children, or your client’s intentions. This uncertainty can lead to protracted legal battles, strained relationships, and irreparable family rifts.

Outdated plan. Circumstances change over time, and your client’s plan may no longer align with their current wishes or family situation. For example, if a beneficiary named in the plan predeceases your client, it is crucial to have contingencies in place. Financial institutions may also be hesitant to accept outdated estate planning documents such as a financial power of attorney. Regularly reviewing and updating the estate plan helps ensure its relevance and effectiveness.

Unequal treatment of beneficiaries. While your client has the right to distribute their money and property as they see fit and in the manner they think best, treating beneficiaries unequally can create tension and hurt feelings among family members. Open communication and discussing the reasoning behind such decisions ahead of time can alleviate stress, help manage expectations, and minimize conflicts.

Unclear wishes regarding care and decision-making. Apart from money and property, your client’s plan should also address their wishes for medical and financial decision-making if they become incapacitated. If your client fails to provide clear instructions, it can lead to disagreements among family members who may have different opinions about the client’s care. To prevent conflicts, it is important that your client appoint reliable decision-makers and clearly communicate their wishes.

Conflicting decision-makers. Conflicts may arise when multiple individuals, such as children, are given priority to serve as decision-makers. Each person may have different philosophies or opinions about the client’s care, leading to disagreements and potential disputes. It is crucial to consider these dynamics and select decision-makers who can work together harmoniously.

Unexpected tax consequences. Inadequate estate planning can lead to significant tax liabilities that may deplete the wealth your client intended to pass on to their loved ones or favorite organizations. By leveraging effective tax planning strategies such as trusts or gifting, your client can potentially minimize estate taxes and maximize the financial legacy they leave behind.

Business succession issues. If your client owns a family business, a lack of succession planning can be particularly detrimental. Without a well-defined plan, conflicts may arise regarding leadership, ownership, and the future direction of the business. This can jeopardize the continuity of the enterprise and strain relationships among family members involved in the business.

Emotional toll on loved ones. A poorly crafted or outdated estate plan can place an immense emotional burden on your client’s loved ones during an already challenging time. Without clear guidance, your client’s family members may be left guessing their wishes, resulting in anxiety, resentment, and fractured familial bonds. By proactively addressing potential conflicts in your client’s estate plan, you can help your client alleviate potential emotional strain on their beneficiaries and foster a sense of unity.

To mitigate these potential conflicts, it is advisable for your client to consult with an experienced estate planning attorney to create a comprehensive and up-to-date plan. Regularly reviewing and updating the plan as circumstances change can help ensure that their intentions are clearly communicated, reducing the likelihood of conflicts among their loved ones and protecting their legacy.