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Choosing a guardian is often one of the most difficult choices my clients have to make. It’s terrible to imagine not being able to care for your children as they grow up, especially if your children are very young.
But not choosing someone is a much worse option. If you don’t designate a guardian for your children, a court would make the decision for you. And although Judges do their very best to decide what would be in the best interest of your children, they don’t know your children, or you family, like you do. As hard as it might be, it’s much better for you, your children, and, quite frankly, your entire family, to make this decision yourselves rather than leave it to someone else.
That said, what should you look for in a guardian? The first advice I give my clients is to think about people who share your values and parenting style. This may mean looking outside of your family. This is okay. There’s no rule that says your guardians have to be blood relatives, and some people find they have much stronger bonds with the family they chose rather than the family they’re born into.
Second, think about your children. Is their sense of place and home very important to them, or are they free spirits up for an adventure? Do they have a strong support network where you live? When my husband and I talked through our options, we felt that we wanted to pick a person who lived in Boise so that our children wouldn’t have to be uprooted from their friends and their community. For other people, however, this may not be an important consideration.
Third, talk to whomever you’ve chosen to make sure they’re up for the job. Perhaps your younger sister who is still single and living on her own in San Francisco isn’t ready to take on the responsibility and sacrifice that comes with raising children. Or, maybe your dearest friends are having problems in their marriage and aren’t able to manage anything more. In most cases, people are honored to be asked and happily agree. But it’s much better to know now that they are unwilling than to put someone in a difficult position down the road.
Fourth, and perhaps most important: you can change your mind. Pick someone and see how you feel about it. If you’re still worried about your decision a month after signing your will, you may not have picked the right person. Also, people and children change over time. Perhaps your parents were the right choice when your children were young, but may not be suited to raising teenagers. Or perhaps your younger sister has settled down and is now in a position to be a guardian. Regardless of the reason, changing your guardian is a simple (and inexpensive) thing to do.
So . . . hire a babysitter, go out to dinner, and have a long discussion about what feels right. Then make your decision, check your estate plan off your to do list, and devote your energy to something more pleasant!
For more information on Estate Planning for Parents, please click here.
A Children’s Trust is a trust that you create in a will, by means of a “testamentary trust”, or in a revocable living trust, to manage a child’s inheritance if something were to happen to you. In its most simple form, a Children’s Trust appoints a “Trustee” – a trusted adult picked by you – to manage your children’s assets until your children reach an age when they are mature enough to manage their assets on their own.
For example, a typical Children’s Trust structure I often recommend to my clients provides that a Trustee will manage the children’s assets until they reach the age of 23, at which point they will be able to request distribution of up to 25% of the principal of the trust. At age 25, they’ll be able to request up to 50% of the principal, and, at age 28, they’ll be able to control all of the funds in their trust.
I like this structure because it allows children to “practice” managing their own money while a majority of their assets are kept safe under the watchful eye of the Trustee. If they run through the first 25% in a matter of weeks, they’ll hopefully take note and do a better job the next time they receive a distribution.
In many cases, the amount of assets your children would inherit if you were to die is much greater than you might imagine. A lot of our assets are tied up in our homes, our retirement accounts, and in life insurance policies. None of these assets are “liquid” so you may not feel like you have a lot, but when everything is added up, you may end up with a much bigger number than you expected.
Imagine how you would have felt if you were given a substantial sum of money when you turned 21? I don’t know about you, but I thought I was invincible at that age and, quite frankly, had a pretty limited understanding of how to manage money. A Children’s Trust accounts for the exuberance and naivete of youth by protecting your children’s assets until they have the life experience to do so themselves.
Many of my clients own property in more than one state. They may have condos in a large city where they once lived which they now rent. Some own vacation houses some place warm and lovely. Others simply have real estate investments across multiple states. Whatever your circumstances, if you own property in more than one state, you will be subject to “ancillary probate” when you die unless you have an estate plan in place that avoids this process.
Typically, when the average person dies, their estate goes through probate in the state where they live. Probate is the process in which a court supervises the distribution of a person’s estate: attorneys must be hired, executors must be appointed, assets must be identified and valued, creditors notified, bill and taxes paid, and assets distributed to beneficiaries. However, if a person owns real estate in multiple states, a probate proceeding has to be filed in every state in which they own property.
As you might imagine, this can be a huge headache for their heirs. Attorneys have to be found and hired in every state, and attendance may be required at court hearings in multiple locations. In addition to the administrative hassle, however, are the significant costs involved.
Unsurprisingly, much of the cost comes in the form of attorney’s fees. In Idaho, it typically costs $3,000 to $5,000 in attorney’s fees to probate an estate. However, other states have much higher mandatory fees. California is one of the most expensive states. For example, in California, it costs $34,000 to probate a home worth $700,000. In Florida, probate costs are $3,000 plus 3% of the value of the estate between $100,000 to $1,000,000. So, a $700,000 house in Florida will cost $24,000 to probate.
You can see how costs can quickly add up! Fortunately, all of these costs and hassles can be avoided with thoughtful estate planning. If you create a living trust and transfer all of your real estate holdings, wherever they are located, into your trust, you can avoid ancillary probate. In fact, by placing all of your assets into a living trust, you can avoid probate all together and ensure your estate will be distributed in an expeditious and cost-effective way.
I can’t tell you the number of times a client has said, “But aren’t trusts only for the very rich?” “Trusts” hold a place in our collective imagine as something reserved for the uber-wealthy. We all know or have heard of a “trust fund baby,” those lucky folks who have inherited so much family wealth that working is optional and there are no worries over how to pay for college!
And while it is true that the very wealthy do use trusts to pass down family wealth and protect money from estate taxes, trusts – specifically revocable living trusts – offer significant benefits for average people.
Privacy. Having a revocable living trusts allow you to avoid having your estate pass through probate. Probate is a judicial process in which the court oversees the distribution of assets in an estate. Probate filings are public records and available to anyone who petitions the court. The terms of a trust, in contrast, are kept private. With a trust, the only people who know the value of your estate are your beneficiaries, and, if you so choose, the beneficiaries may only know the amount they have inherited, and not the total value of your estate.
Lower, predictable costs. Revocable living trusts enable you to predict and control administrative costs. With trusts, the main cost is in the creation of the trust, which you’ll know in advance. Once the trust is created, the costs to maintain it are negligible. More importantly, when you pass, the cost to distribute and administer your trust is small. In contrast, if your estate goes through probate, it’s impossible to predict how much the attorney fees, court costs, and filing fees will be. Currently, probate fees in Idaho range from $3,000 to $6,000.
Control over your assets. Revocable living trusts allow you to set up guidelines for how and when your heirs receive their inheritance. This is particularly important when you have minor children. A trust allows you to set up a timeline for when your children (or grandchildren) receive their assets – for example, you can give them chance to “practice” managing a portion of their inheritance with the security of knowing that a levelheaded trustee is keeping the remainder of the inheritance safe. You can also direct how the assets are used, for example for college instead of for a gap year in Bali.
Ease of administration. Living trusts are easier to administer after your passing. With a trust, your trustee will distribute your assets pursuant to your instructions. In contrast, with a will, your executor must wait for the authorization of the Court before distributing assets.
Faster administration. Probate takes an average of six months in Idaho, as certain statutory deadlines have to be met. With a trust, your trustee can begin to distribute your assets without meeting any statutory deadlines and on a much faster pace.
Lower likelihood of being contested. Revocable living trusts are less likely to be contested. During probate, attorney’s fees are given priority of payment from the estate. This means that attorney’s representing an heir who is contesting the will are guaranteed to be paid. Attorneys are often willing to defer their fees in this situation, meaning an heir can contest the will with few, if any, out-of-pockets costs. In contrast, a person challenging a trust has to pay their attorney upfront, making the challenge much more costly.
Protections for blended families. Revocable living trusts are great vehicles for blended families – allowing spouses to provide for each other while also balancing the needs of children from an earlier marriage.
Tax reduction. Revocable living trusts can help with estate tax avoidance, if this is a concern.