HOW ESTATE PLANNING CHANGES AFTER YOUR CHILDREN GRADUATE
Young children in the family offer a powerful motivation for parents to put an estate plan in place. It’s imperative to ensure growing young ones will be taken care of by the desired guardian in the event of a parent’s premature passing, and it’s important that the guardian have access to the funds to “launch” the child in place of the deceased parent.
How you and your spouse structure an estate plan when your children are young will be much different from how you’d like your estate handled when they are grown. By the time they’ve earned their college diploma, it’s time to take another look at how you’d like your assets handled. You now have adult children, and your estate plan should reflect these changed circumstances.
Is Your Adult Child Ready for a Full Inheritance?
Your son or daughter is no longer two years old, but just because they’re 22 doesn’t mean they are ready to accept a full inheritance, no holds barred. Even if they are much more responsible than their peers, or maybe than they were when they were 16 just a few years ago, as their parent, it’s still your responsibility to look out for their best interests. If you bequeath them a large inheritance before they have learned how to manage money and plan for the future, will it do for them what you want? If they receive a large inheritance in the middle of an ugly divorce, will half go to their departing spouse? If you’re worried about a dependency on substances or a gambling problem, should you appoint another party guardian of the funds? What if your child is simply prone to spending, and you’re wary of imparting your estate fully before they’ve worked to earn their own assets?
On the other hand, post-college, your adult children could be about to enter the phase of their lives when an inheritance could be the most helpful to them- putting a down payment on their first house, paying for graduate school, starting a family...
These questions, and how to approach the various balances you will need to strike, are best asked and answered with the assistance of a lawyer who has experience setting up sensible, tailored estate plans based on estate size, parental concerns and best interests of their children, no matter their age.
Have Your Needs Changed After College is Finished?
For many families, the ability to ensure that their children's education is paid for is a key goal in their planning process. Once they have graduated, you may be in a position to rethink your goals. This includes perhaps reducing the amount of life insurance you carry and pay for. It may also mean that you are ready to place some assets out of your reach, to protect those assets for your children and against the costs of nursing home care. You also may be rethinking your durable power of attorney or health care proxy, if you think your children are ready to assume those roles for you and your spouse.
For many people, this is the age when they start to consider Medicaid planning- isolating some assets in an irrevocable trust so that if you or your spouse ever needs nursing home care you will not need to spend those assets in order to be eligible for Medicaid assistance with that care.
It is also a time when many people begin to implement annual family gift strategies to start moving assets out of their estates to avoid or minimize estate tax liability. If your children are young adults, this is also a way to start introducing themselves to managing money, by transferring up to $15,000 a year to them from your assets.
Who Is Your Personal Representative?
A young parent may have appointed their adult brother or sister as their personal representative, but once their children reach adulthood, they may want to make a switch, especially if their siblings are no longer in the best of health. Adult children are also often appointed power of attorney or health care proxy, given the parental trust that the child will know their wishes and act accordingly. You also now know your children's strengths and weaknesses, and are in a position to make a good decision about who could most comfortably manage each of these roles- personal representative, power of attorney, and health care proxy.
Is it Time to Rethink Who Gets What Assets?
Just because you have multiple children does not mean you want them all to split your assets equally, or that each get the same percentage of each specific asset. As a parent, you are allowed to allocate your assets however you wish. If one child moves out of state and has no desire to come back, maybe you want to leave the family home to the child who loves living in their hometown, but gift more liquid assets to the other. You may also consider the financial standing of each child. Maybe one has grown a successful company, but the other has less financial security. This is particularly complex if you or your spouse have your own business. Now that your children have become adults, can you foresee one or all of them playing a role in that business, or should you instead make plans to have your estate cash out of the business so that they can receive the money instead? Either approach requires careful planning, either to groom one or more of your children to take over the business or to make sure the business is set up so that it can be sold for maximum value when the time comes.
What About Grandchildren?
Back when you formed an estate plan when your children were young, grandchildren might have seemed like a distant prospect. Now that your children are older, you can’t wait for it to become a reality! Your new graduate may be a long way away from thinking about starting their own family, but that doesn't mean you can't think about it as part of your estate planning. While you work on a current estate plan, ask your lawyer about whether your plan is set up to account for grandchildren, or if there is something you can do now to plan for a growing family.
Your Estate Planning as Part of Your Adult Child's Financial Education
As your child enters the world of "adulting," he or she is no doubt taking the first steps toward budgeting and financial planning. Conversations you have about these issues are a great opener for some education about how you are planning your legacy for them, which in turn can help open their eyes about the idea of saving, managing and protecting assets, and thinking about the long term.
It’s not enough to just create a general estate plan. You need an estate plan customized to your family – your life, even as your needs change over the years Set up a consultation with slnlaw today and let’s get started.