Featured / Retirement Planning

Parents – Why You NEED an Estate Plan

Many younger individuals do not feel that estate planning is necessary until they have “significant” assets. This is a dangerous approach especially if minor children are part of the equation. Any experienced estate planning attorney would agree that a core function of estate planning, in general, is the ability for parents to set up the “framework” for their minor children. The most important aspect of this framework is the ability to appoint a guardian for minor children if both parents are deceased. This is not asset-dependent planning and should be addressed as soon as possible, especially in situations where there are family members who parents specifically wish, or don’t wish, to ever be in a position to raise their children.

This framework also includes the ability to set up testamentary trusts for minor children, that is, trusts built into a last will and testament. Contrary to what many believe, testamentary trusts aren’t necessarily asset-dependent planning, either. Even without specific knowledge of what one’s eventual estate may look like and what assets may pass to children, setting up testamentary trusts for minor children early-on allows parents to create a structured vehicle to receive non-probate assets that may only be payable upon their death, most commonly including life insurance proceeds. Simply having life insurance or other retirement savings is enough to warrant setting up testamentary trusts for minor children, even if an individual has no other assets. Consider the following example:

John and Susan are in their mid-30’s with 2 children, ages 10 and 7. John works part-time as a freelance photographer and Susan has a full-time job earning $70,000 per year. They have a large mortgage on their new home, an emergency fund in a savings account, and they each have a term life insurance policy of $500,000. An unfortunate accident occurs to John and Susan, leaving both of their children with no living parents. Luckily, John and Susan were proactive and had a basic estate plan drafted by their attorney, specifically with the intention of addressing this potential scenario. They named John’s brother as the Guardian for their minor children (as he is local and has a great relationship with the children) and they incorporated testamentary trusts into their reciprocal Wills, to which they named as the contingent beneficiaries of their life insurance policies. These trusts are able to very quickly receive the life insurance proceeds and set forth that the funds were to be earmarked for college, but could be used for their children’s health, maintenance, support, and educational needs during their lives until they each turned 25 years old. In order to avoid John’s brother from ever being in a position to be personally accountable or financially responsible for the long-term investments of the trust funds, John and Susan appointed a professional trustee over these trusts who will work hand-in-hand with the Guardian of the children to ensure that the funds are properly invested and distributed for appropriate expenses.

 While there should be a lot of thought that goes into who to name as a Trustee (discussed in further detail here), naming a professional, corporate trustee alleviates many of the potential dangers and pitfalls of naming an individual in this role. In the context of John and Susan, they were concerned that John’s brother could not only be placed in an awkward situation in the future by needing to say no to the children’s requests for money or be subject to guilt or influence they may exert over him, but they were concerned that he did not have the financial expertise to invest the insurance proceeds properly.

This is just a brief overview of the simple framework that can be put into place to ensure minor children are properly cared for after the death of parents. This is not asset-based planning and should be considered as soon as children become part of the equation.

Univest Bank and Trust Co. has gladly acted as Trustee under similar circumstances for more than 90 years. Providing the personal attention and service that you or beneficiaries need is a top priority. If you are interested in speaking with Univest Bank and Trust Co. regarding the benefits of utilizing our fiduciary services as part of your estate plan, please reach out to us at 215-721-2414.

 

Trust services are offered through Univest Bank and Trust Co. Products and services offered are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested.

Girard is a marketing name used by Univest Financial Corporation to provide (1) investment and wealth management, fiduciary services and trust services through its subsidiary Univest Bank and Trust Co., (2) specific fiduciary and investment advisory services through Girard Advisory Services, LLC (3) securities products, insurance products and brokerage services through Girard Investment Services, LLC, a registered broker-dealer and member of FINRA and SIPC, and a licensed insurance agency, and (4) investment management and related products and services to Pennsylvania municipal entities through Girard Pension Services, LLC.