Why Estate Planning for Parents is Vital
August 17th, 2010 
Carol 
According to a survey by Lawyers.com, only 51% of Americans have an estate plan in place. Are you one of the statistics? Have you ever considered who would take care of your minor children if something happened to you?
This question scares most parents because they do not know or have not put it in writing. Unless you have an estate plan in place and have named a guardian for your minor children, a judge will make that decision for you. While courts often appoint a relative or family friend, the court is not required to do so. The court can appoint anyone it determines to be in the “best interest” of the child. Is this what you want? If not, it is extremely important you have an estate plan and name someone to act as guardian of the person as well as the property.
Another scary thought is in Florida, guardianships terminate at age 18 and all funds held in the guardianship are distributed outright to the child then. Would you want your 18-year old to inherit money? Most 18-year olds I know are not mature enough to handle funds responsibly. Thus, the best solution would be to name a guardian of the person in your will (to make living, school, medical decisions) and create a trust for your children (to handle any funds they will inherit). If the trust is prepared and funded properly, a guardianship of the property might be avoided altogether. The added benefit is it allows you to pick the person who will control the finances for your children and allows you to determine when the funds will be distributed to them. A trust of this nature is easy to create with proper planning.
What is estate planning and why is it so important?
Estate planning is the process of arranging for the disposal of your assets at your death and deciding who will handle your affairs. Your estate plan will also name a guardian who will care for your minor children if both natural parents are deceased. Depending upon the size of your estate, it may also include some tax planning to help defer or avoid estate tax. Estate planning also encompasses arranging your affairs in case you become incapacitated. Documents that provide who will make health care and financial decisions for you should always be part of your estate plan.
The four most important estate planning documents that everyone should have are:
1. Durable Power of Attorney. This document allows the designated person to make financial decisions in case you are unable to do so. The term “durable” means the power of attorney survives your incapacity, thereby allowing someone to pay your bills and handle your financial affairs.
2. Health Care Surrogate/Health Care Power of Attorney/HIPAA Authorization. This document allows the designated person to make health care decisions for you if you are unable to do so. The HIPAA authorization authorizes the person you name to obtain your protected health care information. Without the HIPAA authorization, no one would have access to any of your medical information or bills.
3. Living Will. This document sets forth your wishes for end-of-life care and whether you wish to be kept alive by artificial means.
These three documents are critical. If a person is incapacitated and they do not have these documents in place, a legal guardian will have to be appointed by the court. Not only is the guardianship process time consuming and expensive, it is also frustrating because the court oversees all expenditures and major decisions.
4. Last Will and Testament. A will notes who will receive your assets upon death, names the person you would like to handle your affairs after your death, and names a guardian for your minor children. If a person dies without a will, there is a Florida Statute that determines who will receive the assets. However, in today’s world with blended families, same sex couples, etc., the law may include people you may not want to benefit and may exclude people you want to benefit. Thus, it is always best to prepare a will to be certain your assets will pass to the people of your choice. Revocable Trusts (also known as Living Trusts) can also be used. Speak with your estate planning attorney to determine if you are a good candidate for a Revocable Trust.
Another very important aspect of estate planning is to make sure your beneficiary designation documents are up-to-date. Certain assets, such as, retirement assets (401k plans, IRA’s), life insurance, and other beneficiary designation accounts such as “POD,” pay on death accounts, or “TOD,” transfer on death accounts, pass pursuant to a contract between the company and the person who opened the account. When the account is opened, the person is asked to designate a primary beneficiary and a contingent beneficiary. Often times when people get divorced, or there are marriages, births, deaths or other changes in the family situations, they forget to update their beneficiary designation documents. This can lead to disastrous results. Thus, it is crucial to make sure you monitor and continuously update these documents. If you wish to change your beneficiary, all you need to do is contact the company, and ask to make a change.
Please note that minor children should not be listed as beneficiaries of life insurance or retirement assets since most states require a legal guardianship if a minor child inherits more than a certain amount of money. In Florida, the amount is $15,000. Thus, if grandma leaves each of her grandchildren $25,000, in Florida a legal guardianship of the property will have to be opened and the guardian (with the court’s guidance) will manage the money until the child turns 18. Unfortunately, the expense of doing this, preparing and filing annual tax returns and annual accountings required by the court will erode the value of the funds. If grandma had discussed this with her estate planning attorney, there may have been ways that the funds could be left for the grandchildren without causing the need (and expense) of a guardianship.
As the old saying goes …. There is nothing for certain but death and taxes. It imperative that you do not put off preparing your estate planning as none of us know when we are going to need it. If you have minor children, it is even more important to have a plan in place. If you already have a plan in place, review the documents to make sure they are current and consistent with your wishes. Each year when you go to the doctor for your annual physical, be sure to perform an annual check-up on your estate plan. Tax laws and family situations change frequently, so it is critical to make sure your legal documents are up-to-date.
Jennifer Robinson is a shareholder and estate and trust planning attorney for the Florida-based law firm Gunster. Her specialty practice areas include estate and trust planning, probate and trust administration, estate tax return preparation and audits, guardianship administration, advanced estate planning strategies, and charitable planning.
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