Wednesday, October 17, 2012

Planning to Protect Your Children's Future

This week is National Estate Planning Awareness Week. It's a good time for all parents, especially parents of children with learning and other challenges, to think about whether they have taken the steps necessary to ensure their children's future -- financial and otherwise.

It helps to understand what happens when parents don't have wills. In the event that both parents die by an untimely accident or illness that leaves behind minor children, a court will award custody of the children based on "the best interests of the child." The preference of the parents for one family member over another, for example, won't be clearly known to the court that makes this decision. In addition, any funds left behind by the parents (savings, investments, life insurance, or proceeds of a "wrongful death" lawsuit) will be placed in a trust by the court, to be administered according to state law and to be released in full to the child when he or she attains majority, usually at age 18. Only children with the most significant disabilities will have their funds placed in a trust that is administered by a court-appointed trustee. A child with significant special needs who may be receiving benefits from a state or federal agency will lose those benefits that are income based, at least so long as the money left behind by the parent lasts.

In contrast, parents who have sat down and thought about their children's future and who have put in place a plan for what will happen after they are no longer around can take important steps to protect their children and make sure they will have access to their legacy in the most effective and helpful ways.

First, parents can name a guardian for their minor children and for children with significant disabilities who will be in need of guardianship as adults. While this instruction from parents is not controlling on the court administering the parent's estate (see the "best interests of the child" standard mentioned above), it can go a long way to influencing the naming of a guardian, particularly when parents set forth their reason for their decision.

Second, parents can create trusts to hold the assets which will be available to help support their children. These trusts can be set up during the parents' lifetime or, more commonly, in their wills. They can specify how assets are to be spent, at what age(s) their children will receive some or all of the principal of the trust, and who will control the trust purse strings and make necessary financial decisions during the term of the trust.

Most children will reach an age -- 21, 25, 30 -- when they have sufficient judgment and maturity to manage the assets in their trust. But other children will be unable to handle their own finances in any way, especially the significant sums that may have been left to them in a trust. This situation can arise when a child has significant physical or cognitive disabilities, emotional difficulties that impair judgment, or is addicted to drugs, alcohol or gambling. The situation will be different for each family, but parents will know which children fall into this category. For these children, a trust may need to last through their lifetime. And, for children with special needs who are receiving government benefits, parents need to work with a skilled financial planner or special needs attorney who can help set up a trust, generally called a Special or Supplemental Needs Trust, that will ensure that their child can continue to receive their benefits, while being able to supplement the limited categories of items that such benefits cover by providing funds for such items as housing, travel, and education.

After years of legal practice, your blogger has learned not to be surprised at how many parents of young children don't have wills. Often writing a will is something they plan to do, but just haven't gotten around to yet. Sometimes, they can't agree on who should be named as a guardian of their minor children and put off this contentious decision by avoiding writing a will. Planning for the future by writing a will is something that all parents, particularly parents of children with special needs, need to make a priority.

Photo: Jeremy Koren

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