Estate Planning for Young Families
Reznik Law Website
Reznik Law Facebook Page
Blog - Top 5 Misconceptions about Estate Planning
- What is an estate plan?
- Choosing a guardian for a will
- Hiring an attorney vs. using online tools for wills
- Protecting your child's finances
- The process for setting up an estate plan
Reznik Law Website
Reznik Law Facebook Page
Blog - Top 5 Misconceptions about Estate Planning
Mike Dlott: Hi, and welcome to Episode 21 of preschool and beyond estate planning for young families. Writing a will is one of those things that most parents know that they should do. Yet a recent study found that more than half of families with children do not have a will, and that number rises to 92% for adults 35 and under. Some of the common reasons parents fail to set up a wealth and an estate plan include the belief that they're too young to worry about one, or that it is too complicated and expensive to set one up. Today we have with us attorney, Orly Reznick of Reznick law, to discuss some of the reasons why it's essential for parents to prepare their families for the unexpected, and how they can make sure their children are well taken care of in case of unforeseen events. We'll talk about some of the factors parents should consider when creating their estate plan, as well as some tips for getting the process started. Thanks for joining us today, Orly.
Orly Reznick: Good morning. Thank you for having me.
Mike: So let's start off what exactly is an estate plan and why is it so important for families with young children to consider setting one up.
Orly: The estate plan is basically a document or a series of documents that outline a person's wishes and desires for all of their assets, and all of the people that are under their control, so that includes minor age children, and any incapacitated persons that they might be taking care. It involves also taking an inventory of all of your assets that would pass outside of the wealth through beneficiary designations, and strategizing the best designations for those assets, so that they pass according to a person's wishes and in a manner that is consistent with any estate planning documents that they're creating. I believe it's important for every person to have a will. But it's especially true for parents with minor children. Through the estate planning process, a parent can identify a guardian for their minor children, as well as create a trust for the assets that the miner would inherit, and the parent can choose a trustee to manage those assets.
Mike: So just for terminology for people, is there a difference between an estate plan and a will, and what is that difference?
Orly: So a will can be a tool included in the estate plan, but there can also be different mechanisms for distributing property included in a person's estate plan. So that might include a trust as well, it can be a separate trust, or it can be a trust that is included inside of a will and the trust would only become effective should the will become probated, meaning a person passes away, and the will is given to a court to start administering those assets. So a will should be a part of the plan, but may not necessarily be sufficient and depends on every person's unique circumstance. Typically, for minors, for parents with minor age children, I include a testamentary trust inside the will. So the will would be the primary document, there is a trust contained inside that well, that specifies how the assets are to be managed and controlled for the minor and who is to manage and control those assets.
Mike: So if you don't have something in place, if a family doesn't have a will, can you kind of walk us through what would happen in that scenario - if a couple with minor children should pass away, and they don't have a will.
Orly: First let's talk about what happens to their assets. Their assets would be distributed according to the North Carolina default statutory rules. And that's going to be dependent on who is surviving them. So if we have a couple with two minor children, in North Carolina, those assets would just be divided between both of those children. But here's where it gets tricky, those assets can't be given directly to the children. So through a guardianship proceeding, a court would appoint a guardian over the person, that would be the person that has custody and control over the minor children. But they might also appoint a separate guardian of the estate. This doesn't necessarily have to be the same person, that's the Guardian over the children. So the Guardian over the estate would be responsible for managing those assets that were left to the minor children. There's a very strict statutory regiment that the guardian of the estate has to follow as to how and when those assets can be utilized for the minor. And this can be very rigorous. And it's something that if a parent creates a trust in their will, they can draft around those rigorous requirements. The other thing that would happen if the assets are managed by a guardian of the estate, is that at the age of 18, the children would automatically inherit those assets. This is something that when I tell parents it's often a motivating factor, to get them to start thinking about creating a state plan, because most people don't want their children at the age of 18, to inherit the amount of money that they might be talking about. Then you are also subject to whoever the court thinks is the most appropriate person, it could be your sister that they decided to give it to, but you may not really think your sister's an appropriate person to raise your children. So there would be a guardianship proceeding where a court would appoint a guardian for the minor and this is based on the standard that they use is what is in the best interest of the minor. If the parents haven't left any direction for the court, then the court is just going to look at whatever family members or friends come forward and whatever proof those individuals can provide to show that they're the person that is best suited to perform the duties in the best interest of those children. So I think most people would feel most comfortable if they were the ones making those decisions. So having a state plan that specifically names who they would like to take care of their children if something were to occur.
Mike: So when you work with families who are selecting guardians, what are some of the factors that they should consider?
Orly: So this can be a very difficult decision for parents to choose a guardian, because sometimes people have a lot of choices, and they can't narrow down, and other times they don't have any choices and they really have to dig deep and look at friends or extended relatives. So some of the things that I tell parents to consider is they really need to think about the willingness, the ability and the willingness of the guardian to serve. You have to consider the age of the guardian, their health condition, can the guardian meet the physical demands of raising a child? Are they retired, can they meet the economic demands of raising a child, and also have to consider the age and health of the children, parenting and being a guardian. It's a long road, and you're planning for the unknown here. So you really don't know what age those children might be when they need to go under the care of a guardian. Also, think about their values, principles, and child rearing philosophy, and the religious affiliation of the proposed guardian, the location of the proposed guardian, the proximity to other relatives, as well as the lifestyle, the proposed Guardian, such as their job stability, do they travel a lot for work? Do they have other children?
Mike: When people are making their plans, do you recommend multiple people? Do you kind of rank them? My first choice would be my brother, then my parents? Or how does that usually work?
Orly: Absolutely. I usually ask people to select three or four guardians, you always want to have a backup for your backup. And you can select the order in which you would like those people to be selected. So you say, you know, first, I would like my parents to serve as a guardian. But if they're unable or unwilling, then I would like my brother, to serve as the guardian and just go on down the list, so on and so forth. It's always important to make sure that the parents ask the Guardian, if they would like to serve. I've seen this happen a lot. Couples come in, and they meet with me, and they get all their documents together. And we're about to sign the documents and I ask them, okay, well, did you ask the Guardian if they'd be willing to serve? And sometimes they say, so, I'm sure I'm sure that they would. And I've seen it happen, where families don't discuss this. And if it ever comes down to it, sometimes the grandparents don't want that responsibility. So it's really an important discussion to have, and make sure everybody's on the same page before you finalize your documents. And I don't want to go too deep into details, but there are so many things to consider, like, for example, let's say you chose your brother and sister in law, but you're a lot more comfortable with your brother raising your children. If something were to happen to him, you wouldn't necessarily want your sister in law to raise the children, and what happens if she remarried someone. So can you get that technical?
Orly: Absolutely. So, I always recommend that people choose individual guardians, not couples. As guardians that they have to be comfortable if that individual had to serve on their own. That way we can specify, for example, in the instance that you mentioned, if there were to be a divorce, would you still want those two individuals to be the guardians of the children? A lot of times people say no, so I encourage people, even if they're naming their own parents to identify and to be comfortable with the individual that was served.
Mike: So after you if you have your will in place, and something unforeseen does happen, does the person you select number one is Guardian, if they agree to be the guardian automatically receive your chat your children, or could the court then pick someone else?
Orly: In North Carolina, any guardianship designation, even if the choice is made in a will, it's required to go through a guardianship proceeding. So the judge has to be the final determiner. In most instances, the judge will defer to the parents, which is in the well. There are some cases where parents are concerned that their wishes are not going to be followed, there might be some contentious family relationships, they think, if it's a blended family, or there's been a divorce, they don't want their ex husband's parents trying to get custody of the children. If that is a concern, then we would do what's called a memorandum of custody. It's just a separate document, it's referenced in the well, it's kept with the will, but it's separate from it, where the individual or the couple can just outline their concerns for who specifically they would not want to have custody for their children and why.
Mike: Yeah, that's a great point to make. So if you really want to exclude your mother in law, your brother, your sister, you can spell that out in your will. So when someone assumes the role of guardian, you know, they are responsible for making sure the child is taken care of. Are they all also financially responsible? How does that work?
Orly: Yes, so the Guardian steps into the role as the legal custodian the same role that the parent had. So they are responsible for the education, the welfare, the well being of that child. And this is where creating a will and having a testament, minors trust inside the will, is so important, because then the parents can provide financial stability for that child and lessen the burden on the guardian. There are some instances where a parent will create a guardianship letter, but they don't necessarily create a will. So what happens in that instance, is that the parent has selected their guardian over the person, but the assets of the child are designated under the control of the guardian of an estate by the court. And these two people might not have the same goals as the parents had for their children. The trust is also a really great tool for parents to incentivize behavior. Again, you know, couples are planning for the unknown here, everybody has their own hopes, dreams and goals for their children. A trust can be a mechanism where you can create measurable standards and incentivize behavior and encourage your children to pursue the goals and dreams that you would have wanted for them through financial incentives of trust.
Mike: Right. So in that trust, you can then decide they'll get a certain percentage when they're 18 or 21. Can you spread it out across years and be really specific on how they receive that money?
Orly: Exactly. So the trust is a individualized, tailored tool, it's not a one size fits all. And this is where, you know, getting the help of an attorney can really be important in terms of identifying your goals, and finding the best means to achieve those goals. You can specify really any type of distribution scheme that best meets your needs of helping the child achieve the goals and dreams that you want, you can specify, they're not going to get the money until they're 30. You can specify specific in increments that distributions will be made. You can specify additional distributions being male and certain educational goals are met. There's really endless possibilities.
Mike: Great. So you can earmark money sort of say for education so that you can make sure that money isn't going to a new sports car when they turn 18?
Orly: Exactly right. And that would not happen if you didn't have a will, because the minor would inherit all the money as soon as they turn 18.
Mike: Right. And I don't know about you, but at 18, I don't think I was quite prepared to handle financial responsibility like that.
Orly: Most children are not.
Mike: So there are many different ways families can set up a will and an estate plan. What factors should families think about when they're debating between using one of the online forms and companies, or seeking out an attorney to help them set them up?
Orly: So there are some really wonderful online tools available now and they can be great for some families, but might not be the right fit for others. It's really difficult to tell because the online tools don't give you really many differentiating factors. So you many not know whether this is the best plan for you. Or if there's another option, it tries to be like a one size fits all. So there's just a few points of caution. I like to tell people about when they're considering what they want to seek the help of an attorney, or if they want to try one of the do it yourself online options. The first is that online forums, they allow for some room for user edited, editing, and some of those edits can inadvertently invalidate a well. And unfortunately, the online software may not be able to detect or correct these errors. And these are errors that once once they're made, they cannot be fixed or you're not aware of them. By the time you become aware of them, it's too late. The second is that online software might be able to help you draft a will, but it can't help you execute it. So in North Carolina a will is only valid and able to be accepted by a court if it's properly executed. In order to properly execute it, it must be signed in the presence of two witnesses. And it's also the best practice to execute the will with a notary present. So again, you can create a will that expresses all your goals and wishes, but if it's not executed properly, then it might not be accepted by the court, and then all of your planning was for naught. Another point of caution is that online retailers, they don't provide counseling regarding assets that pass outside of the will. People often think that their estate planning is done once they draft their will, have their bank accounts, retirement accounts, life insurance policies, they provide an option for naming primary and secondary beneficiaries. And those beneficiaries aren't designated in accordance with the plan and the will, then the planning might all be thwarted.
Mike: There are so many different factors, you need to really consider and that's why perhaps an online one could work for some families. But you know, for many of us with, especially with children, there are just so many things to consider that it often would be insufficient. So let's say you do decide you want an attorney to help you set up an estate plan, can you can tell us what that process might look like and how long it takes and what's involved.
Orly: Sure, so the process probably vary slightly based on the practitioner. And the total timeframe for drafting the documents might take anywhere from, you know, two weeks to three months, just depending on how busy that office is. The first step typically is just pick up the phone, call an attorney, call their office, ask friends for a referral. Most attorneys that do estate planning should be willing to speak with you on the phone for, you know, five to 15 minutes and give you an overview of their practice and the services that they provide. After that call, typically, they might send you a fee agreement or some sort of statement that indicates the price range of the services, as well as a state planning questionnaire. The state planning questionnaire is going to be the main document that's used to help identify what the client's goals are, and what the best planning tools for that client would be. So after you complete the estate planning questionnaire, you would either return to the attorney's office with that questionnaire, have an in person consultation, typically takes anywhere from 30 minutes to an hour and a half, just depending on the nature of the estate and the amount and type of assets involved. And then you would discuss with the attorney your plans, figure out the best tools, if it's a well, if it's a trust or any other sort of documents. And then after that the attorney would just start drafting the documents, they would send you copies of the draft once they're done. And then once everything's finalized, you just meet to sign and execute the documents.
Mike: Great. And then kind of following up with it, is that something that you should be revisiting every year every so often?
Orly: I don't think so and this is where practitioners really vary. I've seen some practitioners where they try to introduce a maintenance plan where they want people to come every year and go over the documents. I really don't feel like that's necessary. This should be something that is well drafted. The will, an estate plan should carry families through many different changes in their life, it should carry through the birth or adoption of additional children. It's really something that I believe people should do when they have minor age children. They should revisit revising these documents or updating them, maybe once the children are older, perhaps in their mid to late 20s. And then possibly, you know, later on in life when people enter their, you know, 60s and 70s. It's not something that you need to do every year, certainly not.
Mike: Great. So if someone is if they are interested in learning more about setting up the state plan and contacting you what's the best way to get in touch?
Orly: Sure. So I have a Facebook page. You can find me on Facebook, it's www.facebook.com/reznicklaw. That will also lead you to my website.