Wills: October 2008 Archives

October 19, 2008

Fall Clean Up: Check Your Beneficiaries for Retirement and Life Insurance

It's autumn. Your kids are in school, the garden needs cleaning up, the leaves are turning beautiful colors, it's time to get that Halloween costume ready, and -- one more thing -- take a moment to make sure that your beneficiary designations are up to date.

It's open enrollment season, so that's a great excuse to take a look and see who you've named as your beneficiaries for your retirement plans and life insurance policies. Many people forget to do this, leaving out children, or worse, naming ex-spouses.

This can be a big deal: for many people these are some of the largest assets you'll leave behind at death. And your will or trust doesn't control where this money goes after you die -- it's that beneficiary form that matters in most cases. While some states do have laws that automatically revoke some estate planning documents naming ex-spouses, it's just a better idea to make sure that yours are up to date.

You should check to make sure you've still got the right people named for all of the plans listed below at least every two or three years or when you've had a major life change (been divorced, or had a new child for example):

  • Pension plan accounts
  • 401(k), 403(b) or 457 plan accounts
  • Self-employed QRP/Keogh plan accounts
  • Individual retirement accounts (IRAs)
  • Credit union plan accounts
  • Disability insurance policies
  • Life insurance policies
  • Annuities

To learn more about choosing and naming beneficiaries, see Plan Your Estate, by Denis Clifford (Nolo).

October 15, 2008

Special Needs Trust: Smart Estate Planning For Some

Families of children with special needs have estate planning issues that can be special, too.  Parents want to make sure that their children -- who may require expensive therapies, medications, and support -- can continue to receive excellent care, even after their parents have died. Parents can purchase additional life insurance to help fund this care, but disabled children often also require government help from Medicaid (federal health insurance) and Supplemental Security Income (SSI).

The problem is, in order to qualify for these programs a person can't have assets in their own name that exceed $2,000 (not including a home, a vehicle, and basic personal items). Without some special estate planning, an inheritance would mean that a child wouldn't be eligible for these programs until they'd spent virtually everything that their parents had left for them -- hardly the result most parents want.

A special needs trust is one that can hold a child's inheritance for them so it can be used to supplement (not replace) government benefits. The money in these trusts can be used to pay for expenses not covered by government benefits, but without disqualifying a child from receiving them. A trustee manages the assets for the child's benefit and a child never has any legal right to claim the money -- so government regulations don't include trust assets when determining a child's eligibility for benefits.

Barry Nelson, a Miami lawyer recently profiled in the Wall Street Journal, set up a special needs trust for his son. The trust can be used for expenses beyond what Medicaid or SSI would pay for, including "travel, companionship and cultural experiences" and "purchase of small visual and/or audio equipment for entertainment purposes," such as an iPod or DVD player, according to the trust document. A special needs trust "gives me -- and it gives every parent -- peace of mind," explains Mr. Nelson, who says medical and educational expenses for his son run between $50,000 and $100,000 a year.

For a comprehensive guide to creating a special needs trust, see Special Needs Trust, by Stephen Elias (Nolo).

October 1, 2008

No Surprises: Let Your Kids Know What You're Planning

mother daughter talking.jpgIt's natural enough that, as parents age, their adult children begin to think about what they'll inherit and how. This can make parents feel uncomfortable and adult children feel ghoulish. Some families -- I suspect many -- just don't discuss it. How do you tell your kids that you feel one should inherit more, and that another's already gotten all the support they'll need? How do you broach the entire topic with a parent that you love very much, but see fading? But, like so many family issues, it's a conversation very much worth having, and not just for the wealthy.

Estate planning is an act of love, after all. It's about the orderly transfer of what you've managed to accumulate. If you've taken the time to think hard about who needs what you've got and the best way to transfer it to them responsibly, you've gone a very long way to making that transition easier for everyone.

So why not take the next step and at least outline the plan to those concerned? You don't, of course, have to disclose the details if that's uncomfortable. But you can communicate the broad outlines: Are there charities that you intend to support? Are you planning to treat all of your children equally, or are there reasons not to? 

According to a recent article in the New York Times by David Cay Johnston, it's not just a good idea to talk to your kids -- it can significantly lessen the chance that they will challenge your estate plan in court after your death. In his article, Johnston quotes Gerald Le Van, one of the few family wealth mediators in the country, who says, "[T]he children and grandchildren may not like your choices, but at least they feel like you treated them as adults, that you genuinely asked what they wanted and they can then say to themselves, 'O.K., this is not what I wanted, but you don't always get what you want.'"

In second marriages, where there can be deep tension between the adult children of a first marriage and the often much-younger spouse of a second marriage, clear communication can be even more important.

The Times article also quotes Olivia Mellan, a psychotherapist who runs the Web site MoneyHarmony.com, who said that even middle-aged children tended to "interpret the absence of money in a will as being the absence of love from a parent."

When children cannot accept an uneven split or some of the money going to a stepparent, Ms. Mellan recommends telling them: "This is the only way I can die peacefully. I love you, but when it comes to my money, this is what I have to do."