What New Parents Should Know About Estate Planning
Since starting my practice, I’ve been delighted by the number of young families I’ve gotten to work with. As a relatively new parent myself, I know that parents of young children have a ton on their plates, and I’m glad to see that so many families are making room for estate planning. In my opinion (biased as it may be), getting an estate plan is one of the most productive steps that parents can take towards securing the futures of their families.
While many new parents know that a good estate plan can help provide for their children in the event that one or both parents pass away, most parents are surprised to find out just how helpful an estate plan can be. Want to make sure your children don’t inherit property at too early an age? An estate plan can do that! Want to make sure your children’s needs are met if you become incapacitated? An estate plan can do that, too. Want to name guardians to take custody of your children if both parents die? An estate plan can also do that, and it can do a whole lot more.
Today, I’d like to summarize several of the benefits estate planning has on offer for new families. While, I’ve written about several of the topics covered in this article already, my hope is that it will be helpful to have all of this information bundled in one place and presented in a way that keeps new parents in mind rather than a more general audience. Links to the longer articles can be found throughout. If you’re a new parent who wants to learn more about the benefits of estate planning, I hope you’ll get in touch to schedule a free consultation.
An Estate Plan Avoids Intestacy
When a person dies without a will, their assets pass according to the laws of intestate succession. Put another way, the person’s assets will pass according to a default estate plan found in the laws of the state where that person lived. In North Carolina, this default estate plan keeps assets within the family, but the good news ends there. Rather than a deceased person’s property going entirely to their surviving spouse (which is what most people want to have happen), North Carolina’s Intestate Succession Act splits the deceased person’s assets among the surviving spouse and any surviving children. As a result, the surviving spouse has less assets available to help them get by, and the children will have full access to their inheritances as soon as they turn eighteen. People with adult children, people with no children, and people who are in relationships but are not married are also unlikely to be happy with their outcomes under the Intestate Succession Act and would benefit from having an estate plan to direct their assets after death. For some examples of the Intestate Succession Act in action, see this earlier post on my blog.
Leave Inheritances in Trust Rather than Outright
Trusts serve a variety of purposes in an estate plan. For parents with young children, trusts allow parents to leave assets in the care of a trustee who invests the assets and uses them to provide for the young child. The parents get to set all of the trust’s terms, including what the trust property can be used for, who gets to be the trustee, and when (if ever) the trust should terminate so that the child can have full access to and control over his or her inheritance. Without a trust in place, a minor child will get full control over their inheritances at age eighteen, which most parents feel is far too early in life. But with trusts, assets can be kept out of the beneficiary’s hands until whatever point in the future the parents choose. This protects the assets from the beneficiary’s lack of maturity and experience, and also protects the assets from the beneficiary’s creditors and any bad actors who might try to come between a beneficiary and his or her newly inherited wealth. To learn more about the three broad categories of trusts, check out this article.
Designate Guardians for Minors
Guardianship is often top of mind for the new parents I work with. They want to make sure that the right person gets to take responsibility for their children in the event both parents pass away while the children are still minors. A will allows parents to designate guardians to step in under these circumstances, and courts almost always respect these designations. In the absence of such a designation, the court will use its judgment to appoint the person it thinks will be the best guardian for the surviving minor children (and there’s no guarantee that the court will choose the same person that the parents would have chosen). To learn more about the process of designating guardians and the duties of a guardian, see this article.
Plan for Your Own Incapacity
A good estate plan considers what will happen after death, but it doesn’t stop there. An estate plan should also address what happens in the event a person is still alive but has become incapacitated. Documents such as health care powers of attorney and financial powers of attorney make sure an incapacitated person can have their affairs managed by hand-selected individuals who act as “agents” for the incapacitated person (who is known in the documents as the “principal”). The financial power of attorney allows the agent to, among other things, “perform the acts necessary to maintain the customary standard of living of […] the principal’s children.” This includes paying for food, shelter, clothing, education, and other things that the incapacitated principal typically provides for those who depend on him or her. If you’d like to know more about health care powers of attorney, you can read this article. To learn more about financial powers of attorney, click here.
Make Sure All Assets Pass According to a Unified Plan
Contrary to what you might expect, a will doesn’t necessarily determine what happens to all of your assets. Certain assets have other ways of being transferred from person to person, and those methods of transfer will take priority over the provisions of a will. These assets include retirement accounts and life insurance policies (both of which pass according to the terms of a beneficiary designation associated with the account/policy), assets which are owned by two or more people with the right of survivorship (which could include bank accounts or real estate), and assets which have a transfer on death (“TOD”) or pay on death (“POD”) designation (which, again, might include bank accounts). Beneficiary designations, rights of survivorship, and POD/TOD designations are useful tools, but should be used carefully to ensure they will work in sync with the overall estate plan rather than cause it to fall apart. An estate planning attorney should review any such designations with you to make sure your plan will unfold as intended, and they can help you make changes to these designations if needed. To learn more about rights of survivorship, click here. To learn more about beneficiary designations, click here.
As a busy new parent, it’s nice to know that taking just one step – getting an estate plan – can cover so many important bases for your family. The Law Office of Ryan A. Layton aims to make taking that step as simple as possible by offering meetings in person or over Zoom, flexible meeting hours, and free consultations. If you’re ready to get started, please feel free to call or email to schedule an intake meeting.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.