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. Your retirement plan represents the bulk of your estate.

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 “designated beneficiary’’ so that the distributions from such qualified plan may be made over the course of ten years as opposed to five years. In some limited cases, it may be more beneficial to name individuals rather than a trust as the alternate beneficiary to the spouse and avoid naming minor children as the outright beneficiaries of a retirement plan. Please seek guidance from your attorney when preparing the beneficiary designations.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) became law on December 20, 2019.  Below are some of the benefits of such Act:

• The age at which qualified plan participants must begin collecting minimum required distributions is pushed back from 70½ to 72.
• Plan participants can now make IRA contributions beyond age 70½ if they are still working.
• Part-time workers who have been employed long term will be able to more easily join their company’s qualified plan.
• Tax advantaged 529 Plans may be used for qualified student loan repayments (up to $10,000 annually).
• Penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child are permitted.

Below are key points to know about the shortened required distribution period for non-spousal beneficiaries of qualified plans:

• Non-spousal beneficiaries of qualified plans, other than those described below, will be required to withdraw all distributions from an inherited retirement plan within 10 years following the death of the plan owner, so no more “stretching” required minimum distributions over the life expectancy of the beneficiary. 
• There are five categories of beneficiaries who can continue to withdraw inherited IRAs over their life expectancy instead of the likely much shorter 10 years mandated under the SECURE Act.  Such categories of beneficiaries include: a surviving spouse, chronically ill person, disabled person, minor child, or person who is at least ten years younger then the plan participant. 
• A beneficiary who is a minor child when the participant dies must withdraw the balance of the qualified plan within ten years following such child reaching the age of majority, as defined by state law (usually age 18 to 21). 

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.