I have just had a child/ I have children, what estate planning do I need to do?--When you have a child, it is of the greatest importance to have an estate plan. A good estate plan will help to protect the well-being of both you and your child. This article focuses on the use of different estate planning tools as they specifically relate to your child. For most individuals with a child, a basic estate plan should include a will, testamentary trust, power of attorney for finances, power of attorney for healthcare, and an authorization for final disposition. If you have more than one child, even if you already created an estate plan when you had your first child, you should consider having the estate plan updated to include a children’s trust, which keeps your money in a single fund to be used for any child's care as needs arise.
THE CHILDREN’S TRUST
Why have a testamentary children’s trust?--A trust serves three purposes:
- it allows you to choose a person (the “trustee”)who you want to manage your child’s property;
- it allows you to treat your children fairly with the money you leave them; and
- it allows you to choose when your child is old enough to receive their inheritance.
How does a trust treat children fairly?--A trust allows your money to be used on your children in exactly the same manner as it would if you were alive. As parents, we do not separate each child’s money into shares, which are used until the child runs out of money. We give the money to the children as the need arises. A single-pot trust acts in the same way. In a single-pot trust, the inheritance is kept as a single fund, distributed to each child as the need arises. It may later be broken into individual trusts for each child after they exit high school or college or reach an age you determine.
What is a trust?--A trust is a relationship. You choose an individual (the “trustee”) to manage the money and property you designate, and distribute the money and property to an individual (the “beneficiary”) as you dictate in the trust document. The trust document itself sets out the boundaries of the relationship, including the property that is a part of the trust, who the trust is benefiting, the times and purposes for which the funds in the trust should be spent, and when the trust will end.
What is a Will?--A will is a legal document that indicates your desires regarding how your property and dependents should be taken care of after your death.
Do I need a will?--Yes, a will accomplishes three main purposes:
- it allows you to name a guardian for your children,
- it allows you to dictate whom should receive your property after you die, and
- it allows you to appoint a person (the “personal representative”) who will ensure that your desires are achieved.
Who will take care of my child if I die?--Who takes care of your child in the event of your death depends on whether you have elected a guardian for your child under your will. If you fail to elect a guardian under your will, the court will appoint an individual to care for your child.
What if I elect a guardian under my will?--An election of an individual for guardian does not guarantee that person will be appointed guardian. While Wisconsin courts generally follow the election made in the will, they will deviate in the following events:
- if the person elected in the will is not willing to become guardian for the child, the court will be forced to select a different guardian;
- if the court determines that appointing the individual elected in the will as guardian is not in the best interests of your child, the court will select a different guardian; and
- if the biological parent of the child is still alive, the court will likely disregard any guardian listed in the will and give the child to its biological parent.
What if I know someone who would be amazing at raising my child, but is not good with money?--It is possible to appoint more than one person as a guardian of your child. There are two types of guardians: the guardian of the person and the guardian of the estate. The guardian of the person is effectively the substitute parent for the child, making day-to-day child-raising decisions. The guardian of the estate manages and controls the money that you leave to your child. This way you can choose the best person to raise your child, and leave the money management to someone more suited to that task.
THE POWER OF ATTORNEY DOCUMENTS
What is a Power of Attorney for Finances?--A Power of Attorney for Finances and Property is a document in which you (the “principal”) name another individual (the "agent") to manage your finances and property. You determine the money and property you want the agent to have authority over, as well as the authority you want the agent to have. The authority can be broad or specific, depending on your preference. A power of attorney for finances may be “durable,” meaning that your agent may manage your finances in the event of incapacity or incompetence.
What is a Power of Attorney for Healthcare?--A Power of Attorney for Healthcare is a different document, in which you (the “principal”) name another individual (the “agent”) to make healthcare decisions for you if you lack capacity to do so yourself. You may indicate your expectations for your end-of-life care or nursing home care within the document. A Power of Attorney for Healthcare or a guardianship is required if you want to allow someone the authority to place you in a nursing home or other long-term-care facility.
Why have these documents?--If you are injured, and unable to say what you want, the only legal method available for you to express your wishes is to explicitly appoint someone who will be responsible for seeing that your desires are carried out. Therefore, whether you are single or married, poor or rich, these documents are necessary for everyone.
THE AUTHORIZATION FOR FINAL DISPOSITION
Do I really need to think about my funeral?--No, but is it really fair to leave your loved-ones to plan, wondering whether they are doing what you would have wanted? Your death will be a hard time for your family. Doing some of the work yourself by writing down an outline of how you would like your funeral to be held can help ease the burden your family will feel. An authorization for final disposition is a document that can help put these plans into action.
What is the authorization for final disposition?--An authorization for final disposition allows you to appoint an individual who will be responsible for taking care of arrangements for your funeral. The document allows you to indicate whether you want to be cremated or not, whether you want any religious activities performed, what the funeral should include, and what funds should be used to pay for the funeral.
The documents above are only some of the estate planning tools that are used to plan for individuals with children. Other tools may include spendthrift trusts (in the event you have a child that cannot manage their money), asset protection trusts for individuals with disabilities (to ensure that they do not lose benefits), and additional planning for blended families. For more information about these issues, be sure to check back on March 28th, when we will discuss these situations.
This has just been a brief glimpse of the estate planning that many individuals with children need. For more information, please feel free to call Attorney Heller-Neal at (262) 902-0595 or email: email@example.com.
Derrick Heller-Neal is a solo lawyer located in Racine, Wisconsin.