5 Important Estate Planning Considerations
1. You have minor children
Minor children should only inherit assets as a beneficiary of a trust. If a minor child inherits assets outright, the court may require the creation of a special trust, called a 1301 Management Trust. The assets of the trust are managed by a bank’s trust department. The trustee fees and attorney fees associated with such trusts range between 1% and 2% of the value of the trust each year. When a child reaches the age of eighteen, the child may receive the trust proceeds outright. To avoid this result, your estate plan might create a trust for the lifetime and benefit of minor children and name a trustee who is a trusted family member, a close friend, or a trust department. When a child reaches a certain age of your choosing, the child may become trustee of his or her own trust.
2. You have a child with special needs.
Planning for children who have special needs is important to preserve the child’s access to government benefits including Medicaid and supplemental security income. Your will or revocable living trust should include a trust for the special needs child; and the trust should include language limiting the distributions made for the child’s benefit to insure that distributions are not being made for services or treatments which would otherwise be provided by a governmental program.
3. You have a blended family.
A blended family is a family with at least one child who is not the natural or adopted child of both parents. Under the Texas Estates Code, if a married parent dies intestate and leaving children who were not born in the marriage of the deceased parent, those children of the deceased parent receive the deceased parent’s one-half of the community estate, two-thirds of the deceased parent’s separate personal property, and almost all of the deceased parent’s separate real property. Most clients wish to opt out of the default plan provided by the state of Texas, as it can leave the surviving spouse in a financial bind. While parents in a blended family have the greatest need for estate planning, such planning is often postponed because decisions are often difficult to make. Your attorney will offer creative solutions which will enable you to balance competing interests and manage complex relationships.
4. You have a sizeable retirement plan.
Often, a retirement plan, taking the form of an IRA or 401(k) plan, represents one of the largest assets in a person’s taxable estate. Be aware that this asset passes to beneficiaries via a beneficiary designation on your death and will not be governed by your will or revocable living trust unless you specifically name the revocable living trust or trust set out in your will as the beneficiary. There are important income tax advantages to naming a spouse as the primary beneficiary of a retirement plan. However, a trust might be named as the alternate beneficiary. If a trust is named as a beneficiary, care must be taken to insure that the trust is a “qualified trust’’ so that the minimum required distributions from the retirement plan may be made over the life expectancy of the oldest beneficiary of such qualified trust. In some limited cases, it may be more beneficial to name individuals rather than a trust as the alternate beneficiary to the spouse. Some older plans require a lump sum distribution to trusts but allow more favorable distributions to adult individuals. Avoid naming minor children as the outright beneficiaries of a retirement plan. Please seek guidance from your attorney when preparing the beneficiary designations.
5. You have life insurance or annuities.
Like retirement plans, life insurance and annuities pass to beneficiaries via beneficiary designations upon your death. Consequently, if you want your will or revocable living trust to govern the distribution of such assets, the beneficiary designations will need to name the revocable living trust or trust in your will as the primary beneficiary or alternate beneficiary to your spouse. Never name minor children as the outright beneficiaries of life insurance. Please seek guidance from your attorney when preparing the beneficiary designations.