In recognition of National Estate Planning Awareness Week (Oct. 16-22), this is a second article in a series on estate planning debacles. If you want to keep control of your assets (a.k.a., your estate) and of decisions about your children when something happens to you, it’s important to plan now. Could this estate planning mistake happen to you?
Your Children Are Put in a Situation You Wouldn’t Have Wanted
Michael and Sara have been married for 16 years and live in Massachusetts with their 10-year old son, Ben. The couple saved and invested wisely for their retirement with combined assets of $3 million including their personal residence, life insurance and retirement accounts. They had simple “I Love You” Wills prepared, which left everything to the surviving spouse, with ultimate distribution to their son.
Unfortunately, after leaving Ben with a babysitter to attend a friend’s gathering, Michael and Sara are killed that night in a car accident.
- The night of the accident, Ben is placed into the care of the Department of Children and Families until the authorities can locate the closest family member and run the necessary background checks. Unfortunately, this was Sara’s sister, who lived in Florida. It took nearly two days until Ben was temporarily placed with his aunt.
- Michael and Sara’s estate needed to pass through Probate Court. The Probate process tied up their assets for nearly 18 months.
- As part of the Probate process, a guardian needed to be appointed for Ben. The Court appointed Michael’s brother as guardian (as he was named as legal guardian in the Wills). The Court also appointed a third-party conservator to manage Ben’s inheritance. The Court (not Ben’s guardian) controlled the inheritance and the Court-appointed conservator was paid from the inheritance until Ben reached the age of 18.
- Upon turning age 18, Ben receives a lump sum payment of several million dollars for all the remaining assets.
Estate Planning Mistake & Lesson Learned
Given that Michael and Sara passed away with basic wills, their family was forced to deal with the expense and delays associated with the Probate process. A Court-appointed conservator managed all assets for the benefit of Ben (with Court oversight) until he reached age 18. Then, at the age of 18 Ben receives an outright inheritance of several million dollars.
As young parents, if Michael and Sara had set up a Revocable Trust they could have maintained more control. With a Trust, Michael and Sara’s family would have avoided Probate, and their assets would have been distributed according to the Trust – to whom they wanted, the way they wanted, and when they wanted. For example, the Trust could have held assets for Ben until he reached a certain age in adulthood or other milestone, such as graduating college or getting married.
Kids’ Safeguard Planning
In the tragic scenario described above, a 10-year old boy who had just lost his parents was placed with the Department of Children and Families for two days until he could be reunited with a family member. During traumatic times, children are always better off with familiar friends or family members as opposed to strangers, no matter how safe and capable. If you are a parent of minor children, your advanced planning needs to include a Kids’ Safeguard Plan to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like. A Will alone is simply not enough…don’t make this common estate planning mistake.