Estate Planning for Young Families

Whether you are a young couple with plans to start a family or an individual approaching retirement age, estate planning is a critical factor to maximize your quality of life for yourself and your loved ones.

In part one of ASR Law Firm’s free webinar series on Estate Planning for Different Stages of Life, lead attorney Anila S. Rasul explores estate planning strategies for young married couples and families. 

No matter what stage of life you are in, estate planning is critical to your overall quality of life.

Explore the transcript of the video below as a reference to help you and your young family better understand Estate Planning for Young Families.

Introduction to Estate Planning for Young Families

My name is Anila Rasul, owner of ASR Law Firm, a boutique-styled law firm in Boca Raton Florida, joined by my colleagues, Financial Advisors, Rania Jawde and Frank Rekas.

The focus of my presentation today is to explore some of the less discussed aspects of estate planning for married couples – particularly newer couples – as well as the need for certain financial planning options to help facilitate a comprehensive plan.

Given our limited time today, I’ll ask that all questions be left until the end of the presentation.

So let’s get started…

I’m sure you’re all familiar with the need for some of the basic documents such as the:

• Last Will and Testament and/or Living (inter vivos) Trust
• Durable Financial Power of Attorney
• Medical Advanced Directives:
  • Healthcare Surrogate
  • Living Will
  • HIPAA AUTH

But today I would like to go a little deeper into the subject and explore some important considerations for estate planning for young families and married couples when drafting these documents.

In my experience, newly married couples, of any age, are most in need of creating, reviewing or revising their estate plan documents.

And this is due to the significant changes in their lives regarding beneficiaries, agents, etc.

Essentially, individuals are shifting from having their parents and/or siblings being the most important family members to the couples themselves.

And as families grow, so does the need to protect growing assets and appoint appropriate fiduciaries.

So, there are 4 areas I’d like to discuss and they are: the need to update plans, Florida’s elective share, providing for kids and the need for financial and insurance planning for the “sandwich” generation.

One of the first things I discuss with estate planning for young families and newly married couples is their…

• NEED TO UPDATE THEIR EXISTING ESTATE PLANNING DOCUMENTS –

Truth be told, in my experience few younger, unmarried individuals have estate plans… although recent trends show this to be changing.

But those who do, usually name their parents or siblings as their beneficiaries, trustees or agents… and this makes sense because up until getting married, those are your most trusted family.

After marriage, however, many never think of updating their documents OR they believe that there is no need since their estates are so small (meaning they don’t have many accumulated assets)

Some of my clients even mistakenly believe that their spouses will automatically get their assets if they unexpectedly pass away.

And while spouses are generally first in line to get a deceased spouse’s assets in cases of intestacy (that’s dying without a will), this is not necessarily the case if the person dies with a will naming a parent or sibling or if they have someone other than a spouse listed as a beneficiary on a financial account.

In fact, I recently spoke with a couple who were about to be married. The to-be wife contacted me to assist with putting together their estate planning documents.

As it turned out, the to-be husband didn’t see this as much of a priority because he believed that all of his assets would automatically go to his wife if he unexpectedly passed away.

His assets included, among other things, an investment property that he co-owned with his brothers and a few investment accounts on which he named his parents as beneficiaries upon his death.

After I explained the possible outcome of his specific situation, he realized that what he intended to leave behind would not necessarily happen without him clearly stating his intentions.

Luckily, after our conversation, he was far more amenable to creating not only his estate planning documents but also exploring his insurance options… which, in my world, is considered a big win for the day!!

I’ve also had clients tell me that they’ve “spoken to” their parents and they trust that their spouse will be taken care if they pass away unexpectedly.

Now even if you’re 100% sure that your parents will do the “right thing” and turn over your estate to your new spouse, there is not guarantee that will happen, and furthermore, there are other reasons you wouldn’t want your parents to be listed as your beneficiaries and/or agents.

The most common reasons I discuss with my clients are:

• There’s a greater likelihood that your parents will predecease you leaving you with the need to update your documents and beneficiary lists again… so why not do it now!?
• Any additional assets you may give to your parents may alter their tax obligations, something they may be trying to keep to a minimum as they get older and
• For those with older parents who may reside at nursing homes etc., blanketly transferring assets to parents’ accounts may allow nursing homes and other such facilities to attach to those funds, which may not be your intention.

Now, aside from changing beneficiaries in estate planning documents or on accounts, newly married couples should reconsider who may serve as their agents, such as their personal representatives of wills and trustees of trusts.

Although spouses usually name each other, if they choose to name successor agents or others entirely for the role, several factors should be considered.  A few of the more common ones that I discuss with my clients are:

• The ability and competence of the individual chosen (i.e. older parents may not be able to manage all the duties of being a trustee of an estate)
• The family dynamic and trust of the named person (i.e. naming your estranged brother… not only do you want to trust the person will live up to their fiduciary duties, but also that they are familiar enough with your preferences so that they can properly carry out your wishes)
• Geographic convenience of the person. (i.e. it may not make a whole lot of sense naming a sibling that lives in Alaska if you live in Florida for practical purposes)

In fact, these considerations also apply when choosing someone to act as your healthcare surrogate or named agent in a durable power of attorney.

Again, it is especially important that you choose someone who you trust implicitly and who will also have the emotional ability to carry out their responsibilities.

This is usually why spouses name each other…

Now, this brings me to the second area I’d like to discuss, if you and your spouse agree that you prefer for your parents or siblings to remain as beneficiaries (I’ve seen people do this as sort of a good-faith gesture to repay parents for paying for your education or helping with a down payment for a house etc.), you must remember that spouses have special protections in Florida.

For example, homestead rights or something called the Elective or Spousal Share.

ELECTIVE SHARE IN FLORIDA

Florida law, specifically FL Stat. 732.201, protects spouses who have been inadvertently forgotten or purposefully disinherited through its Elective Share laws.

This law allows a surviving spouse to elect to receive 30% of their deceased spouse’s estate regardless of what is stated in their will.

Years ago, before the prevalence of women in the workforce, this law was first enacted to protect wives who were purposefully disinherited by their husbands who chose to leave their estates to mistresses. Thus, leaving a mother, who typically did not work outside the home, to care and provide for herself and the children.  However, today it applies to both spouses.

With this election, a surviving spouse can attach to almost all assets of the deceased spouse including property owned with others having a right of survivorship, payable on death accounts, contents of revocable trusts, as well as, death benefits associated with various types of retirement plans.

So, for this reason alone, it is imperative that spouses adequately provide for each other in their estate planning documents to avoid assets not being distributed as intended.

To illustrate, consider this scenario, in cases where the deceased spouse truly intended to name a parent or sibling as a beneficiary on a bank account, the surviving spouse may elect to take part or all of that account to make up their 30% share of the estate that they are entitled to. Thus, leaving your intended beneficiary with nothing.

Furthermore, even if both parties agree during their lifetimes that they will each leave the lion’s share of their assets to someone other than each other (this arrangement is common with second marriages), the surviving spouse can still change his/her mind and make the election for the 30% of the deceased spouse’s assets after he or she passes. One way around this, if both spouses agree, is to execute a pre or post-nuptial agreement waiving any rights of the Elective share that either spouse may have after the other passes.

THE KIDS

Adding to the complexity of all these changes of becoming a married couple is the addition of children. This has critical implications for estate planning for young families.

For most of my clients who are parents, there are two main areas of concern with accounting for children: (1) leaving assets to minor children and (2) guardianship of minor children.

• The logistics of leaving assets to minor children can be difficult.

For example, how does one go about leaving a vehicle to a 5-year-old or expensive jewelry to a pre-teen who may not appreciate its value?

Many parents will use trusts to leave specific and detailed instructions as to what, when and how assets may pass to or be used for the benefit of their children.  These trusts may either be written into their wills or it may be a separate Living Trust that becomes irrevocable upon the parent’s death.

What many of my clients often realize is that some assets may be easier to deal with… for example, leaving cash or investments to minors may be simpler than other assets like real estate (due the ability to create custodial investment accounts etc).

But there still remain the issue of who will manage these accounts, or other assets, for minor children.  For example, if the asset is real estate that is set to be sold to fund an account for the children, who will handle that sale on their behalf.

It is in these trust documents that parents will clearly state who will manage these assets on the children’s behalf, when the children may receive the assets and in what portions, as well as, how funds may be spent to upkeep the children’s standard of living.

Over the years of helping parents with preparing these types of documents, it’s clear that most know how they prefer their assets to be divided… the bigger issue is selecting the fiduciary to help their children along the way.

• And that takes us to the second area of concern… the selection of guardian for minor children.

A guardian serves a long-term caretaker of a minor child. So needless to say, selecting an appropriate person is as equally challenging as it is important.

Most couples would first turn to their parents as the preferred Guardians of their children. However, this may not be the best option because as the child gets older (and presumably their demands greater) so does the grandparent.

Selecting other close family members such as siblings, may also pose its own set of issues such as introduction of a child into a family that already has children and the guardian having the responsibility of allocating resources accordingly… especially problematic when the deceased parent leaves behind large insurance payouts to care for the children etc.

I recently had a client who was set on having her cousin become the guardian of her kids. But she knew that any funds left for her children would provide a far better lifestyle than her cousin could afford on her own. So within the provisions of the trust, she allowed for certain expenditure, such as yearly summer vacations etc., that the cousin’s family could also enjoy along with her children at the expense of the trust’s funds.  This was just one way to eliminate potential conflict amongst the guardian’s family and the deceased’s children.

So, as you can see there are a lot of factors to consider when choosing both a trustee and a guardian for a deceased’s minor child.  I always tell my clients, that when choosing a guardian for a child, there is no perfect choice. Only the “least bad” choice.

• The final area of concern that married couples must consider is their status of being “IN BETWEEN” TWO GENERATIONS & IMPORTANCE OF FINANCIAL & INSURANCE PLANNING

Many married couples with children will find themselves in between two generations – often called the Sandwich Generation – because of having to provide for their children while taking care of aging parents.

This can be financially stressful or damaging, especially to younger families with limited.

I always advise my clients that the best way to successfully balance these responsibilities is not only to ensure that their estate planning documents are in line, but also to make sure that they are financially protected as well.

This is a perfect example where estate planning professionals and insurance/financial planning professionals work together to create a secure plan for their client.  In fact, the client I mentioned previously who selected her cousin to be the guardian of her children, funded her estate with a life insurance plan with very high payouts.  So, there was quite a bit of coordination between my office and her financial advisor’s office to ensure she was appropriately covered.

So, having financial assets that are easily liquidated to fund an estate plan is imperative to properly protect your family, especially if you have younger children.

The objective is to always to conserve as much of your estate as possible, so the more liquid and easily transferable, the better!  if all of your assets are real estate and your intention is to have those properties sold to fund accounts for your family after you pass away, then you must remember that a significant portion of the value of those properties will be spent on facilitating those sales and not necessarily be passed on to your family.

This is a perfect example of how vehicles such as life insurance planning become especially important because it allows you to leave behind cash money for your family to maintain their standard of living after you’re gone.

Now, like estate planning, financial and insurance planning is done not only in contemplation of an untimely death, but also in the case of an unexpected long-term disability.  This is particularly important for the main financial provider of the family… which today usually includes both parents.

Because of this, I always recommend that my clients explore options for long-term disability insurance coverage that will provide that extra bit of security and cash benefits for family members if they can no longer work.

These financial and insurance options allow this “Sandwich Generation” to insure themselves to the extent needed to care for minor children, as well as, aging parents, as the case may be. It allows them to be as protected as their particular circumstance demands at any given time.

And these options, together with properly drafted estate planning documents, allow a couple the confidence of knowing that their bases are covered and their family will be taken care of in case of a long-term disability or untimely death of either parent.

And with that, I come to the end of my list of the most common concerns married couples encounter when creating their estate plans.  I hope you found relevance and value to this information.