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Most parents would do anything for their kids. Sign them up for a summer camp with a college tuition price tag. Send them to a college more expensive than a luxury car. Drive them all over the place and build a LEGO castle with them, even when exhausted. Also: A smartphone, an ice hockey habit, drum lessons, a dog and other things that wear you out. But sit down with a lawyer and plan for the unknown? Well, maybe not.
In our September issue, we discussed the importance of having a will and naming a guardian (go to njfamily.com/will for the basics). Without designating a person to raise your kids should you and your partner pass away, you’re leaving it up to the courts (aka strangers who don't know you or your family) to decide what’s best. And you don’t want that. Naming a guardian, however, is just one important step in shielding your family from a bad turn of events. What else should you do? Read on for answers to some pressing estate planning questions.
I finally drafted a will. Do I really need to do more?
“Drafting a will simply directs where the money goes,” says Northfield-based attorney Carol Goloff, the Cape May County trustee to the NJ State Bar Association. It doesn’t detail how assets are to be used. For that, you need a trust specifying exactly how to provide for your kids.
Otherwise, unlike you, your chosen guardian can decide that science camp and twice-weekly SAT tutoring are unnecessary luxuries, unlike that shiny new SUV that’s a “must” for hauling your kids around. Or they may, out of sympathy and guilt, spoil your kids rotten (really rotten).
“Even if nothing bad happens, it’s statistically impossible that anyone would raise your kids the way you would,” she says. “So setting up a trust with specific terms and conditions is important to help ensure a financial upbringing as you would have it.” Trusts can also control how and when beneficiaries spend their inheritance once they turn 18—for example, on education only until they’ve reached a (theoretically) fiscally-responsible age. “You can’t just hand someone a million dollars, or expect them to use the money as you would,” says Goloff. “Having a trust in which you can control how the money is spent is very important.”
What else can trusts do?
What can’t they do? “If you have a goal to protect assets for a certain purpose, there's some sort of trust you can set to achieve that goal,” says Hackensack-based attorney Naomi Becker Collier of Pashman Stein Walder Hayden. They can also help those blessed with large estates keep more of what they have. “Through the careful use of trusts, there can be tax benefits,” says Sarah Waldeck, JD, a professor of property, estates and trusts at Seton Hall Law. Plus, those with titled assets (homes and cars) can use trusts to avoid the not-so-convenient probate process. “People who are wealthy should absolutely consult with a lawyer,” she says. The same goes for people who aren’t wealthy or have unique needs.
Can a trust benefit my special needs child?
It absolutely can. Once children have aged out of the school system, Medicaid is required to access various programs and support services disabled persons may need as adults. However, only those with less than $2,000 in includable assets in their name are eligible (after they nearly zero out their inheritance). The fix? A Supplemental Needs Trust. “Funds can be used to supplement their care, not as a primary source,” says Becker Collier. Expenses are paid through a trust-funded bank account that's carefully monitored to adhere to Medicaid’s rules about asset-based benefits. To fund this trust upon your death, you can direct that child’s percentage of the estate directly to the trust. You should also ensure that loved ones planning to gift or leave money to a special needs child direct said funds right to the trust lest Medicaid benefits be lost.
How can I protect my finances if I’m incapacitated somehow?
Through a Durable Power of Attorney (DPA), a living document that allows you to appoint someone (most often a spouse) to manage your assets in your literal or figurative absence, whether you’re traveling off the grid or ill. “It’s like saying, ‘I’m giving you the power to act as me,’” says Goloff. A DPA’s power isn’t absolute, and can be as broad or limited as you want, she says, from basic bill paying to managing more complicated financial matters. In any case, it’s important that you and your partner have one.
“It avoids the need to go through the expensive process of having a guardian appointed for an adult who becomes incapacitated,” Goloff says. And that’s what makes it priceless.
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Okay, so let’s say I’m really ill. It’s great that someone’s handling my finances—but what about my medical needs?
We like to think our people know us. But they don’t, not well enough to guarantee that when the doctor asks if he should amputate your leg to save your life or try that experimental—but risky—procedure that could give you back the ability to work out every day or never again, he’ll be team legs. True, doctors often defer to the family when weighing treatment options—but they don’t have to. “You never know what in life is going to happen. Who’d you rather be making decisions for you—your spouse or your doctor?” says Goloff. To ensure your wishes, beliefs and values are respected, you need two things:
Someone to make healthcare decisions for you (aka a medical proxy, durable medical power of attorney) and instructions detailing what those decisions should be (aka a medical directive, living will or advanced healthcare directive). “A healthcare proxy gives authority to make medical decisions for you if you’re unable to. The healthcare directive is what gives that proxy direction,” says Becker Collier.
So choose a proxy sure to advocate for the decisions you’ve spent some time mulling over. It may just save your life.
My kids are officially young adults—but they’re still my babies. Any suggestions?
A DPA authorizing a parent to keep the lights on, so to speak, is a must for preventing credit dings, while a medical directive naming mom or dad as proxy will prevent doctors from making decisions for your child you don’t approve of. “You can’t speak for your kids after age 18,” says Becker Collier, a cruel legal truth. So have a convo with your kids—and a chat with your lawyer—once they hit the magic number and before they head to college. “It’s a good time and so important,” says Becker Collier. Also, if you’re helping your post-college children, update your power of attorney to authorize your agent to continue financially supporting them with what the law considers gifts. “Unless the power of attorney says your agent can make gifts, they may not do so,” she says, since a DPA doesn’t have the legal authority to give to kids over 18 or other supported family members unless it’s specifically stated. So state it.
The beauty of proper estate planning is that you can prepare your children for a future without you. And that’s exactly what every responsible parent is supposed to do.
DOs and DON’Ts of Estate Planning
DO coordinate your beneficiaries. Make sure beneficiaries of all your assets, investments, accounts and insurance policies—even the old ones—match your current wishes.
DON’T use an online service for complicated planning. “Is there a benefit to using a professional? Yes, 100 percent,” says Becker Collier. To keep lawyer fees manageable, do your own research and come to appointments prepared (every extra minute costs you).
DO have enough life insurance. How much? “Enough to get them from now until they don’t need your support anymore,” says Waldeck. Sit down with a financial planner to figure out what that means to you. If you have a special needs child, it’s even more critical to plan for the future.
DON’T set it and forget it. Things change. People change. “Review your documents every few years,” says Becker Collier, or whenever there’s a major life event (birth, death, marriage, divorce, etc.).
Jennifer Kantor is a parenting and lifestyle writer who lives in Maplewood with her husband and two kids.
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