It’s all about the kids. It always has been. You fed them, helped them to complete school assignments, taught them to ride their bicycles and to drive, saved for their college educations, and, if they are already adults, counseled them on careers, relationships, and the purchase of their home, and you want to leave them their inheritance in a way that will be most helpful to them. Something that will make their lives easier, but not cause them to be unmotivated. You want to help them put their children through college and to provide them with security, especially if you pass away before they or their own children are grown. As with any other decision regarding children, there are many things for you to consider/worry about. What if you die when your children are still young? What if the inheritance is lost during divorce? What if your child is struggling with addiction? Will leaving assets to your child push their own estate above the threshold, causing heavy taxes before assets can flow to your grandchildren? Maybe your child has special needs and will lose the government benefits they are receiving if you leave assets directly to them. These are all valid concerns, and problems that we can plan for. When I talk with you about your children, I will refer to them as “children,” because, well, it’s convenient, but also because no matter how old and how accomplished they may be, they are still your children, and all the feelings that are associated with that relationship are really what inspired you to contemplate having your estate planning documents prepared in the first place, weren’t they?
Planning for Minors
In New York, New Jersey, and Connecticut, the age of majority is eighteen. Anyone below that age is unable to own property. If an individual passes away without a Will, assets pass according to the laws of intestacy, and the result is not what people assume – that if you were married and had minor children, your spouse would inherit everything. On the contrary, in New York, your spouse would inherit the first $50,000 and one-half of the remaining assets, and your children would inherit the other half. Similarly, in Connecticut, your spouse would inherit the first $100,000, your spouse would inherit one-half of the remaining assets, and your children would inherit the other half. New Jersey’s law is a bit different, with your spouse inheriting everything unless either you or your spouse had children from a prior relationship, in which a portion of your assets (as much as half of everything after the first $50,000) would go to your children. The difficulty with the laws of intestacy providing for your children in this way (other than your spouse not being able to access all of the assets that he or she may need), is that minor children are not able to themselves own the property, and the court will appoint a guardian to manage the property, until the child reaches the age of eighteen. This could be difficult for your spouse, who may be required to request the court’s consent before being able to spend any money on your children. It could also be deleterious to your children, who may find themselves with more money than they are ready to wisely handle at the tender age of eighteen.
To prevent this result, we want to make sure that your estate planning documents say that all assets are to go to your spouse (if this is indeed what you want), and include trust language that dictates what will happen if your spouse has also died and you are leaving assets to your children and they are younger than a particular age that you feel comfortable with. Those assets can be held in trust for your children, with a trustee of your choice in charge of the assets until whatever age you decide on.
Planning for Children with Special Needs
Both Medicaid and Supplemental Security Income (SSI) are means-tested government programs. Meaning, if you leave assets to a child receiving one or both of these benefits, they will likely be rendered ineligible to continue receiving those benefits, and will not be able to reapply for them until they have spent down most of what you have left them. If your child is in a specific Medicaid-funded program, like a supportive group home that is particularly suited to their needs, this result could be disastrous because they would lose their spot in that program and adjustment to a new privately-funded program, with all new people, may prove difficult, especially while they are reeling from the loss of their parent.
Leaving assets to a properly-drafted special needs trust, rather than directly to your child, will prevent this result. You would select an individual (and a successor) to serve as a trustee for your child. The trustee will be able to monitor what needs your child may have after you are no longer there to do so, and to distribute assets for your child’s benefit in a way that will not replace the government benefits that they are already receiving (or become eligible for after your death). The goal with this type of planning is that the assets that you leave your child will be available to cover expenses that are not covered by a government program, thereby making the assets last much longer than if they were needed to cover all of your child’s expenses. Additionally, you will be able to name a remainder beneficiary of the Supplemental Needs Trust to receive any assets remaining in the Trust at the time of your child’s death.
Planning for Children Susceptible to Creditors, Divorce, or with Large Estates of their Own
I recommend generation skipping trusts for many of our clients’ children. Perhaps more often than a client’s children needing their inheritances protected because the child is a spendthrift, in debt, or struggling with addiction, it is because the child has been so successful. A child who is a doctor, financial advisor, or other professional may be sued for malpractice. Couples who started out strong get divorced. A child with a sizable estate who receives an inheritance from their parent may find that their own estate will, with the addition of their parent’s assets, be subject to significant estate tax. You can leave your assets to your child in trust so that the assets are not really “theirs,” but are available for their use, with some truly minor restrictions, during their lifetimes. If needed, you can select family members whom you trust to serve as the trustee of the trust. If your child does not need someone else to manage the assets for them, your child may even serve as their own trustee, managing the investments and distributions throughout their lifetimes. The inheritance received from you will thereby be kept out of the calculation to determine the size of your child’s estate upon their death, passing to your grandchildren (if they are who you named as the remainder beneficiaries) without being reduced by estate taxes.
If you have been contemplating how best to provide for your children, contact our team at Laidlaw & Simon so that we can cultivate an estate plan that works for your family.
