Reason #1: You want to choose who has control over your children and their money
Reason #2: Maximize the value of your business when you die or become incapacitated
Reason # 3: Protect your beneficiaries from future creditors, divorce and themselves
While there are many reasons why you should have an estate plan, there are three that stand out.
#1: I’ve said this a thousand times, but the reason that people actually go to an estate planning attorney to do their planning is the same reason why people avoid doing the planning: the children. How, as a parent, do you make a choice about who will rear your children if you die or become incapacitated? Is there anyone who will make the decisions you would make about anything from education to health? It’s a very daunting task to choose your successor and that’s why so many people just put the blinders on and avoid making these decisions. I faced these same dilemmas as a parent and, I am not going to lie, I was so happy when my youngest turned 18 and the decision was no longer relevant to me. However, I also have an adult child with special needs so, while legally, I cannot name someone to care for that child, I still have a responsibility to have a plan in place. I’ve sat down with hundreds of young parents over the last three decades and I’ve witnessed many marital squabbles over the subject of guardianship. It is astounding how many families have not discussed it and even more so how strong the feelings are when they are finally faced with the conversation. Parents need to realize that there is no good answer, and they need to plan around the best, not perfect options. They need to determine who can make good decisions about their children’s health, education, and social lives and who can organically integrate your precious children into their homes and make them feel loved and welcome. These people may not be good with money and that’s okay because you can name someone else to handle the money that you leave for your children. Avoiding these decisions does not solve the problem. Having witnessed guardianship battles between family members in the same family and the in-laws, I can tell you that the only ones to blame are the parents who failed to plan and discuss their decision with their extended families.
#2: Your business is often your most valuable asset; however, without you, the business may have no value. Many people, and estate planning attorneys, overlook this particularly important issue. You must do estate planning for all your assets and that includes estate planning for your business. For example, if you were to become incapacitated and you did not have a durable power of attorney, who would designate who would run your business, sign checks, make decisions, etc. If you had a manager already in place, who would oversee the manager to make sure that such person was doing the best they could do to run the business in such a way that your family could still get a good income. If you didn’t already have a designated person in place, then what? How would you pass the business to the next generation if there were no plan in place? Are all your children in the business or only some of them. You may need to equalize your assets, so some get the business and the other get other assets. The issue of business estate planning is often overlooked, but it needs to be addressed.
#3: Whenever I have an estate planning discussion with a client, we discuss the advantages and disadvantages of continued trusts for beneficiaries. The disadvantage is that the trusts would require some administration and the beneficiaries wouldn’t get all the money at once. The advantages far outweigh the disadvantages. Keeping the money in trust provides beneficiaries with protection from their creditors and from troubled marriages. If the money is kept in trust, then the beneficiary would get the money as needed or the money could be used to pay for necessities for the beneficiary. If the beneficiary has no mandatory distributions, then their creditor and divorcing/ex-spousecan’t reach the trust money. It’s a very simple concept, yet it has far reaching advantages. In fact, if the money is not needed, then it can continue to the next generation who might need it more and still be protected from the next generation’s creditors.
The last thing you want is for your grandchildren to come into a big inheritance and spend in foolishly in one sitting. I can’t tell you how many stories I hear about children and grandchildren doing this. Wouldn’t it be wiser to set up a system where money would be available for things that your beneficiaries need, but money would not be readily available for extravagant purchases? If your kids or grandkid wants a Ferrari, then let them earn the money to buy one. You can put a roof over their heads and food on the table and a Toyota in the garage. Too often, I have clients who want to make things “easy”, so they take the simple route and leave everything outright. Sometimes, it’s a solid plan, but most often it is a short-sighted error. Don’t you want to train your beneficiaries to make good choices?