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Majoring in Minors
Do
you have any minor children (i.e. under age 18 in most states)? If you
do, then your calendar is likely filled to overflowing with their school
commitments and extra-curricular activities. Besides time, all of these
commitments and activities require money…and lots of it. Since your
children are worth the investment of both your time and your money, what
plans have you made for them in a world without you? What would happen
if your children were orphaned today?
Back-up
Parents
Who would you entrust with the responsibility of rearing your minor
children to adulthood? By default, any surviving parent will be the
legal guardian (i.e. back-up parent) over your minor children. However,
in the event there is no surviving parent, you must legally appoint the
guardians of your own choosing or a court will make the appointment for
you. When selecting guardians, most parents appoint family members or
friends with whom they share common principles, values and religious
beliefs. [Note: It is prudent to get permission from your intended
appointees and appoint alternates should they ever be unwilling or
unable to serve.]
Inheritance
Managers
As with guardians for your minor children, unless you legally appoint
the inheritance managers of your own selection, a court will make the
appointment for you. Accordingly, you should legally appoint them
because a court would likely appoint the guardian to serve as the
inheritance manager, too. Very few divorced parents want their
ex-spouses to manage the inheritance left to their minor children.
Common candidates for this role include trusted family members or
friends, professional inheritance managers (i.e. trust companies), or
combinations of the two. [Note: As with guardians, you should obtain the
permission of your prospective inheritance managers prior to their
appointment and even appoint a successor.]
Common
Concerns
Once you have appointed appropriate inheritance managers, you still need
to protect the inheritance both for and from your children. There are
three common concerns that can be hazardous to your wealth. First, the
divorce rate has never been higher and blended families today outnumber
original nuclear families. Second, lawsuits and bankruptcies are setting
new records. Last, but not least, ambition-killing affluenza is
always a concern whenever someone inherits wealth for which they did not
personally work. Depending on how the inheritance is left to your
children, it can either be a blessing or a curse.
Without proper Life & Estate Planning, your
children will receive their full inheritance upon reaching legal
adulthood (i.e. upon reaching age 18 in most states). Will their
inheritance be taken by a subsequent divorce, lawsuit or bankruptcy?
Will it be converted into fast cars and extravagant trips, rather than
college educations, first homes and seed money for a small business?
Because of these concerns, some parents create
plans that distribute the inheritance outright once their children gain
some life experience and maturity. For example, they may direct that
one-half of the inheritance is distributed at age 25 with the balance
distributed at age 30. While this is better than a full, outright
distribution upon reaching legal adulthood, it does not offer the
maximum inheritance protection available by law. In addition, an
outright distribution, whether made upon reaching legal adulthood or at
any point thereafter, can have some undesirable, unintended
consequences. For example, if you are divorced and your child receives
their inheritance and subsequently dies without any surviving spouse or
children, who inherits through your child? The correct answer: their
surviving parent (i.e. your ex-spouse)!
The
greatest inheritance protection is achieved when your Life & Estate
Plan creates a Long-Term Discretionary Trust to administer the
inheritance for your children. Such an arrangement can make both income
and principal available to your children for their health, education,
maintenance and support, as well as for any purpose deemed appropriate
in the discretion of your appointed inheritance managers. Properly
drafted, a Long-Term Discretionary Trust may serve as a Life &
Estate Plan within a Life & Estate Plan. How? Upon the death of your
children, the inheritance can continue for their own children. If they
have no children, then the inheritance can continue for their
siblings…without any unintended consequences.
This
publication does not constitute legal, accounting or other professional
advice. Although it is intended to be accurate, neither the publisher
nor any other party assumes liability for loss or damage due to reliance
on this material.
Copyright © 2004 by Integrity Marketing
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