Estate planning mistakes are common, especially with new parents. Anyone who has ever been–or been around–a new parent knows that parenthood brings sleep-deprivation, loads of laundry, worry, and joy.
New parents are prone to worrying about the mistakes they are making or the mistakes they might be making. Am I feeding the baby enough? Is that a cry for a diaper change, a nap, a burp, more food, or some combination of these? Is my baby napping too much? Too little?
In the midst of worrying about making mistakes in the day-to-day care of the baby, mistakes that may be more imagined than real, new parents often do make serious estate planning mistakes of which the following are common:
1) Not making an estate plan, or not updating an existing estate plan.
Because estate planning is more than who inherits when someone dies, estate planning is vital for families. Estate planning includes:
who makes your medical decisions if you are unable to understand and/or communicate your treatment wishes;
·your wishes for (and limitations to) life-prolonging treatment if you are not expected to recover or if you are in a persistent vegetative state;
·who doctors have permission to talk to about your health;
·who, in addition to you, can manage your property and financial affairs such as paying bills, filing insurance claims, buying and selling property, negotiating contracts, dealing with creditors, and much, much more;
·who inherits your probate or trust assets when you die, when the recipient receives them, and who is in charge of making sure your plan is honored;
·who can consent to medical treatment of your minor child if you are not available and what the scope of the treatment granted to this person is; and,
who can enroll your child in school, sign permission slips, or other school-related authorizations if you are unavailable.
Without an estate plan developed by you, for you and your unique and particular family members and circumstances, you and/or your family will receive the “one-size-fits-all” state default plan. The state’s default plan may require time- and money-consuming court involvement before it can be implemented, and the state’s plan will be a “best guess” at what appears appropriate and may not reflect what the parents would have implemented if the parents had completed their estate planning.
2) Naming minor children as beneficiaries.
Beneficiary designations are tools that allow the direct transfer of the underlying asset, such as life insurance or a retirement plan, to the named individual(s) at the death of the owner, thus skipping the probate process. Like other tools, the use of beneficiary designations is helpful in some circumstances and not helpful in others.
Using beneficiary designations to transfer assets to a minor child is not helpful because minor children cannot directly control assets, even if the minor can own them. A court must name a qualified adult or organization to manage the asset(s) until the minor child reaches the age of legal adulthood, which is 18 years old in Virginia. To protect the minor’s interest in the management of the money she is supposed to receive, the court will appoint an attorney to meet with the minor and make a recommendation to the court as to the suitability of the proposed money manager. The court process may take several months, and in the end the person appointed to manage the minor’s money will have to report to the court each year and may have limited ability to actually use the money for the minor’s benefit. And, the costs of the proceeding are paid from the money that was left to the minor.
Upon turning 18, the now legal adult can demand and receive all of the remaining money, regardless of the amount, and without any restrictions on its use.
What at first blush appears to be a quick and inexpensive way to transfer assets to and provide for the needs of a minor upon the death of the parent (or grandparent), quickly becomes costly and time-consuming—all at a time that is already stressful.
3) Not nominating a guardian of their minor children and the child’s estate (inheritance) in the event of the parents’ untimely death.
A Will is the only legal document in which parents can nominate the person with whom their child will live (guardian) and the person who will manage their child’s inheritance (guardian of a minor’s estate) should the parents die before the child turns 18 years old. If one parent survives, the surviving parent continues to be the child’s legal guardian but must be nominated to manage any inheritance left to the minor child by the deceased parent.
If parents die without nominating a guardian for their minor child and the child’s inheritance, then (you guessed it!) a court proceeding will be necessary to determine who should fulfill these roles. Family members may compete with each other for the appointment, adding additional stress to an already stressful time.
To protect the minor’s interest in who is appointed in these important roles, the court will appoint an attorney to meet with the minor and make a recommendation to the court as to the suitability of the proposed individuals. The court process may take several months. The costs of the proceeding are paid from the money that was left to the minor, if any, or are borne by the person seeking the appointment if the minor’s estate has insufficient funds to reimburse the applicant.
A comprehensive, up-to-date estate plan is as essential to new parents as a car seat is to the baby!
Contact Us to Avoid Estate Planning Mistakes
Work with an experienced attorney to avoid estate planning mistakes. Once created, the estate plan should be reviewed periodically and updated to account for changed circumstances, including reviewing and revising who is nominated as guardian of the person and estate of the minor children as the proposed guardian has changes to his or her circumstances. To get started on your estate planning, please use our convenient online form or call Promise Law at (757) 690-2470 and enroll in one of our free educational workshops. Life Happens. Plan on It.™