We’ve all heard the stories, or even been in the center of them: the 40 year old dad of three who drops in the middle of a basketball game, and never gets up; the 29 year old mother of two who is inconceivably hit by a car while crossing the street; the 55 year old father of three grown children who dies at his desk. The unexpected – whether we like it or not – happens every day. As parents, part of our responsibility to our kids is to plan for possibilities that we hope will never happen.
1: Decide who will take care of the kids
Talk now about who you would want to take care of your kids if you are not able to. You may assume, “if anything ever happens to me, their father will take care of them.” But what if their father is with you when the debilitating or catastrophic event happens?
There are many considerations in this decision, and it is not easy. You clearly want someone who will love and cherish your children. You also want someone you can trust to spend any money they are given for the children’s welfare. You want to think about your values and morals and ideals. You may even want to consider the ability potential options have to care for children. Your 87 year old great aunt might not be the best choice.
Once you have made this decision, you want to memorialize it in a legal document. The traditional legal document for this type of a decision is a will. If you do not want to write a will, however, other documents can be drafted to preserve your intentions.
2: If you are running a small business out of your home, do you need an LLC?
A limited liability company, also known as an LLC, is a corporate structure that you file with the state. There are some tax advantages to earning money in the name of the LLC as opposed to as a sole proprietorship. Another advantage for parents planning for the future: perpetuity.
If a business is owned by a sole proprietor, the business dies when the owner dies. If a business is operated as an LLC, it can continue operation even if the original owner is incapacitated or deceased. This allows the business to continue making money, and potentially continue supporting your family, even if something happens to you.
3: If you have any assets that you will be leaving to your children – even if that is many years off – do you need to create a trust?
There are many types of trusts. Some come into being immediately, others aren’t created until the time of your death. If you decide to transfer ownership of property to a trust, there are several advantages to you. First, the trust is a separate legal entity. Second, on your death the property in the trust is not considered to be part of your estate, escaping any estate tax penalties. Third, the trust can be set up to have whatever specific rules you want it to have – so that in the event of your death, your money is still distributed as you would want it to be.
Another type of trust used by parents is one that “springs” from their will. All of the parents assets transfer to the trust at the time of death and are managed by a named trustee. The named trustee may or may not be the same person identified as the guardian of your children. The trustee is responsible for managing the assets in the trust for the benefit of your children. At a certain point in time, you can choose to have the trust dissolve, with all assets being handed over to your children.
Legally, your children are considered adults at age 18. However, if you create a trust such as this, you can create a specific time when your children are entitled to receive assets – such as age 21, 25 or 30. You can also determine ahead of time that the trustee can give them money for certain things, such as a down payment on a house – or that they will be entitled to the entirety of the trust assets after they have had a child.
4: What is your plan for your health?
If you are married, you likely assume your spouse will make any medical decisions if something happens to you. If you are single, you may guess that your mother or sister will have this responsibility. But what if this person is with you in a car accident?
You can name “Healthcare Representatives” ahead of time. You may choose your spouse or your mother as the primary, and then designate another person as the secondary representative. You can then talk ahead of time with those people and let them know your thoughts on certain medical treatments.
No matter how old your children are, you should consider executing a statutory living will. A statutory living will allows you to elect your medical treatment in the event you are diagnosed with an untreatable condition from which you will likely never wake up. Choosing that decision for yourself can potentially save your children and other loved one anxiety in the years to come.
You may also want to consider executing a regular power of attorney, designating someone to handle your financial affairs in the event you cannot. You can build into the document a clause that the power of attorney is not effective unless you are incapacitated.
(c) KJD Legal