College Cost and Your Child’s Inheritance

College Fund

written by Bay Area estate planning attorney Carmen Rosas.

Question: Our younger son attended a state college  and our older daughter, an ivy league school that cost far more. We want to take into account the difference in the expense as we decide what to leave our sons in their inheritance. How do we do this?

Answer: It’s your decision on how you distribute, and your will or trust can be structured accordingly. However, have you thought through your approach?

Most parents raise children out of a common pot, providing for each one’s unique needs from the same account. Comparing the costs of raising them is a slippery slope.

Does one get more because she did not require braces? The other less because he failed math, took a summer course and could not work a summer job?

I question the wisdom of adjusting inheritances based on uncontrollable childhood circumstances and youthful choices. Also, it could create animosity between siblings.

It’s another matter to base unequal inheritances on what you’ve given them in their adult years. Children tend to understand and respect that approach. For example, if you gave one a sizable down payment to purchase a home, you may want to deduct that from his inheritance.

Whatever you decide, make sure you consider the impact on the relationship of your children and grandchildren after you pass away.

What is a Trust?

A trust is simply a contractual arrangement between three parties – the Trustor (aka the Grantor or the Settlor), the Trustee and the Beneficiary – which specifies the rights, responsibilities and obligations with respect to assets that the Trustor has transferred to the trust and that should be distributed to the Beneficiary.

Trusts can be revocable or irrevocable. A revocable trust means that it can be changed/amended during the Trustor’s lifetime. An irrevocable trust cannot be changed. A revocable trust, depending on the language can become irrevocable immediately upon death.

Trusts help to avoid Probate upon death and Conservatorship during the lifetime. In addition, trusts can accomplish a variety of objectives when planning an estate:

  • Minimize estate taxes
  • Hold assets for minor, disabled, or financially irresponsible beneficiaries.
  • Create flexibility in estate planning for couples in a second marriage.
  • Living TrustProvide asset protection and divorce protection for beneficiaries of the deceased.

The next question is DO I NEED A TRUST?

Well if you answer “yes” to any of these questions, you should consult an attorney to figure out whether or not a trust is the right move for you.

  • Do I have minor children who I wish to provide for at my death, but yet delay distributing money to them until they are older so that they are better able to handle the money responsibly?
  • Do I have an adult child who is disabled or incapable of handling his finances?
  • Do I have a child with a drinking, drug or gambling problem?
  • Do I have an adult child with an untrustworthy spouse?
  • Do I have a child who is so successful that he will be subject to his own estate taxes?
  • Do I have a child who is in a business or profession potentially subject to personal liability?
  • Am I divorced and do I have minor children?
  • Am I re-married and have children from a prior marriage?
  • Am I concerned about the privacy of my affairs and the affairs of my heirs after my death?
  • Am I concerned about the costs and timeliness of concluding my affairs after my death?
  • Do I own real estate located in a state other than the state in which I reside?
  • Do I trust the federal government to continue to allow a couple to transfer $10.5 million of assets at death without paying federal estate taxes?

If you want to know more about the Top Estate Planning Documents check out our old post here.

Want to know more or set up a plan? Give us a call.

“Screw College! I’m 18 and rich!”

Happy Wednesday folks!

I read an article last night regarding the importance of your children’s age when leaving an inheritance.

When I speak to my clients, I often explain to them that although at 18 an individual is legally an adult, many 18 year olds are just entering college and aren’t thinking about long term financial stability.

They are aren’t thinking about life after retirement or even starting their own families. Very few 18 year olds are mature enough to handle thousands of dollars, or if they’re lucky, millions.

Clients are usually advised to allow the initial distribution at the age of 25, and continue the distributions until about 35. This allows children to go through college, establish their careers, start their families, save and begin thinking about retirement. At 35, the inheritance they receive won’t deter them from the hopes and dreams you have for them or the ones they have for themselves.

But, if you don’t have an estate plan, you don’t have control over this and whatever is left after probate fees, will go directly to your children at the age of 18. Yikes!

What age do you think a child is financially mature enough to receive an inheritance??

The TOP 4 (MUST HAVE) Estate Planning Documents

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If you follow us on Facebook or Twitter, you have probably seen the weekly Friday “Homework” in preparing for your estate planning meeting. If you don’t follow us, you should!

So, what is this “Homework?” Well it’s basically a list of things to consider before meeting with our Redwood City estate planning attorney.

The last two weeks were 1) the financial information you should gather and 2) if you’re a parent, some things to consider when selecting a guardian (See our past post here).

In addition to our weekly “Homework” assignments, we have decided to post on the TOP 4 (MUST HAVE) Estate Planning Documents to help you stay even more organized!

TOP 4 (MUST HAVE) ESTATE PLANNING DOCUMENTS

1. Will: A will gives instructions for distributing property that you own, upon your death, through the probate process. A will is essential if you have minor children, as this is the only way you can name a guardian for them. Some wills are simple, while others may include complex planning provisions, depending on each particular circumstance.

2. Advance Health Care Directive: An Advance Health Care Directive or AHCD is a document that designates someone to act for your regarding medical care should you become incapacitated. This document will also determine if and how long you stay on life support. So, if at some point you can’t state your wishes regarding health care, someone you love and trust will be assigned to make those decisions for you.

3. Durable Power of Attorney: A Durable Power of Attorney or a DPA gives someone the authority to handle all of your finances and property should you become unable to. This document will allow a person of your choosing to sell, invest, spend and otherwise manage your finances for a specific time identified in the document. The agent you select will be able to handle everything without needed a court order.

4. Living Trust: By transferring your assets to a living trust, you are able to protect your assets if you pass away. Assets that are properly placed in a trust avoid probate- this is key and that’s why a will alone is not sufficient to avoid probate. Generally, you are the trustee for your trust and if something happens to you, you will have already named a successor trustee to handle your affairs. (You ask why is MUST HAVE in parentheses? Well, because if you don’t own property or have certain assets, you probably don’t need #4).

At the Law Office of Carmen M. Rosas, we design plans specific to your needs. Not every client is the same and not every client has the same story. We want to hear your story!

If you liked this post, subscribe, and never miss a post again. And, if you really liked it, shoot us an e-mail and request one our other handy dandy reference guides for FREE(Please let us know which ones you want!)

  • 12 Tips for Choosing a Guardian
  • Things to Consider in Selecting a Guardian

And stay tuned for our e-book, coming soon!

Want to know what NOT to do when it comes to Estate Planning? Here are 5 Common Mistakes!

Here are 5 Common Estate Planning Mistakes you want to AVOID:

You don’t have an estate plan: If you own assets exceeding $150,000 (thats owning one house!), a will is not going to protect your assets or the loved ones you leave behind. Not creating an estate plan means you are leaving your family with a lot more work after you’re gone. This means that you not only have no say in how your assets get distributed, but you will also be leaving your family with a large expense. Probate fees are statutorily set and could exceed $12,000.

Not funding the trust: So, you have an estate plan?! Great news! Did you transfer everything to the trust ? This step is important. If you never transfer your assets into the trust name, well, the trust never gets funded and is basically no use. An experienced estate planning attorney can help your family if the attorney has the proper tricks and tools, but it’s going to cost the beneficiaries an additional $3,000-$4,000 to “fix it”.

The wrong guardian is listed for your children:  By having a will, you can name a guardian for your minor child. However, if its been a while since you’ve reviewed the guardian selected, make sure that guardian is still valid. For example if you want your child to stay in the state and close to family members, but the guardian listed in your will was recently transferred to a job in Dubai, well maybe its time to update that will. If you don’t have a will, the state decides who will care for them at a hearing. Sometimes the judge will consider the child’s preference (if they are old enough) and use that to make a decision.

You have the wrong beneficiary listed for your 401k or life insurance: You named your mom as the beneficiary of your 401k or life insurance policy. Now you want your daughter to be the beneficiary. If you don’t update it, your mom will be the recipient. Its a quick and easy fix- just contact the company holding your policy and request the make a change in the beneficiary.

Not using a qualified attorney: Although there are lots of online or DIY estate planning tools, estate planning is not something that should be attempted without consulting an attorney. A simple mistake or omission can have a huge impact long after you are gone. A local, experienced estate planning attorney understands the terms and legal requirements in your state. Most have counseled many families and have seen the results of proper and improper planning. An experienced estate planning attorney can advise you on important issues such as whether or not a special needs trust need to be created for a parent or a child who has creditors after them.

If you need help with estate planning, please contact our Redwood City Estate Planning Attorney. We will be more than happy to help you create the plan that best suits your needs or update the one you currently have. 

Estate Planning isn’t just for the rich!

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Yes, a will is always important but if you have assets, a more comprehensive estate plan is necessary.

While reading the current issue of MONEY Magazine, I came across an article (that’s where the picture came from) and thought it would be a good time to remind my followers and clients that just because you haven’t met your goal of becoming a millionaire, doesn’t mean you don’t need a trust!

Especially now with the uncertainty of the fiscal cliff, if your estate exceeds $1 million dollars and you want to avoid probate, you will need to create a trust.

We offer flat fees for comprehensive estate plans. What exactly does an estate plan entail?? Well, our office includes the following: will, trust, health care directive, and a durable power of attorney.

As the year comes to an end, you should really consider creating an estate plan in order to protect your assets. If you are in our area, we will be happy to answer questions. If you aren’t in California, contact one of your local estate planning attorneys.

Talk to you soon!
Carmen