Protecting Your Kids with Proper Planning

Your children mean the world to you. You’ve done everything within your power to meet their needs and to ward off dangers. You keep a watchful eye out for them, whether they’re swimming in the ocean or wandering too close to the edge of the Grand Canyon. You provide for their needs, from putting food on the table to buying new clothes for school.

We cannot protect our children from every risk in life. When they grow up, they will make some mistakes, just as we did. However, we can afford them some financial protection by leaving their inheritance in trust.

A trust can help because it holds legal title to assets, even though as beneficiary, your child will hold beneficial title. By leaving your assets to your child in a “Family Access Trust,” he or she could still get to the assets at any time. He or she could even remove all the assets from the trust, if desired. Yet, while assets remain in the trust, the trust can protect the assets from your child’s divorcing spouse and, in most states, keeps your child’s future ex-spouse from taking your child’s inheritance.

A Family Access Trust will not act to protect assets from other creditors, however. In order to accomplish that goal, you need a “Family Sentry Trust,” which is a discretionary trust for the benefit of your child. Distributions to your child are made by the person (Trustee) you appoint to make decisions for the trust.

Your child could be a Co-Trustee, but could not act alone to make distributions. Your child could be named as the Investment Trustee and, in that capacity, could direct how the assets are invested. A Family Sentry Trust protects your child from most of their creditors, subject to state law. An additional benefit is that, with a Family Sentry Trust, the assets are not taxed to your child’s estate for estate tax purposes.

You’ve spent your life building your legacy. That legacy will become your child’s inheritance. Keep that inheritance from being attached by future ex-spouses or other creditors. A qualified estate planning attorney can help you provide for your children, and not their creditors.

For more helpful information about estate planning, please visit www.smithbarid.com.

Three Estate Planning Myths Common Among Women

Traditional gender roles are fading fast. Gone are the days of Donna Reed and June Cleaver. However, gender still makes a difference. One of the areas in which we see a difference is estate planning.

Why is that?

Women continue to live longer than men do. In fact, according to MsMoney.com 75% of women will become widows at some point in their life. A woman is an average 56 years of age when she is widowed.

It may not be fair, but women are the ones affected by poor planning because, statistically, women live longer—an average of 6.7 years longer.

There are several myths women commonly hold about estate and retirement planning:

Myth #1

I’m not old enough to worry about it, yet.

Planning is important at any age. You are not just planning for what happens to your assets at your death but, also, for who will take care of things if you become incapacitated. Furthermore, while you are young and your children are still minors, it is important to select guardians to raise them if something happens to you.

From a financial perspective, if you start saving early, it will be much easier to have a comfortable retirement. Remember, on average, women are only 56 years old when they become widows. Husbands may not be around when it comes time for retirement.

Myth #2

My estate isn’t big enough to worry about estate taxes.

Maybe it isn’t today but it may be by the year you die. The amount you can pass free from estate taxation under current law goes down in 2011 to $1 million. Meanwhile, the average person’s assets continue to grow.

For example, over the long run, a broad measure of large U.S. stocks, the S&P 500 index, has increased (on average) 10.4% annually since 1926. That means it doubles approximately every seven years. So, if you have over $500,000 today (appropriately invested) and you expect to live more than seven years, you could have a taxable estate! By starting early and planning, you can minimize estate taxes.

Myth #3

If I hold property by joint tenancy, I do not have to worry about estate planning.

Joint tenancy can be a simple way to avoid probate and having to re-title assets upon the death of one spouse. However, if joint tenancy passes all of the dead spouse’s assets to the surviving spouse, we increase the surviving spouse’s estate even more and compound the estate tax problems. Further, joint tenancy is not a solution to the problems of incapacity.

Women live longer than men and are likely to survive their husbands, having to pick up the pieces after their husbands’ deaths. This is why, despite the many myths out there, estate and retirement planning is critical for women.

Estate and retirement planning can be a complex puzzle. A qualified estate and retirement planning attorney can help you put all the pieces together. With a well-planned estate and retirement, you can rest easier. Your future will be secure.

You will have laid the foundation for a great life. You will have guarded against incapacity and the death of your spouse or partner. Finally, you will have set your children off on the right path. It’s amazing what a little bit of planning can do!

For more great information about estate planning, please visit www.smithbarid.com.

Decisions . . . Decisions . . . Decisions . . .

When asked how people want their assets divided after they are gone, some people have definite opinions, while others are less certain. Not only do people differ in the level of their uncertainty concerning how to divvy up their assets, they even differ in what factors are important in making the decision.

In June 2007, Money magazine released a reader poll concerning various financial issues. The following percentages of respondents ranked each factor as very important:

• Dividing the estate equally among your children: 69%
• How responsible each child is about money: 37%
• How helpful each child has been to you: 29%
• How close you are to each child: 22%
• How much money each child has: 22%
• How many children of their own each child has: 19%
• How much you like each child’s spouse: 10%
• 37% said it can be reasonable to disinherit a child.

Another item of indecision for many people is the choice of decision makers: Trustee, Personal Representative, Guardian, and Agents under powers of attorney. For each of these positions, it is important to name people whose decision-making ability you trust. You may be tempted to name all your children or siblings to avoid hurting anyone’s feelings. However, naming a large number of people to serve together in the same role invites family disharmony and chaos. For example, if property in the Trust is to be sold and you have seven Trustees, many of whom may be out of town, it would be a logistical nightmare to route paperwork all around the country. Typically, things work more smoothly if you limit the number of people in any given role. Besides, having a job thrust upon them may be something many would just as soon avoid.

Regardless of what factors are important to you, a qualified estate planning attorney can help you achieve your goals. For example, if you are concerned about your child’s ability to manage finances, the money can be left in a Trust which will prevent him or her from accessing the funds without the permission of a person whom you designate, the Trustee. If you do not like your child’s spouse and are concerned he or she might divorce your child and take some of the inheritance you leave your child, you can leave your assets in a “Divorce Protection Trust.” Such a Trust keeps the assets separate from marital assets. Therefore, it minimizes the risk of the assets ending up in the hands of the child’s future ex-spouse.

A qualified estate planning attorney can help you achieve your goals while paving the way for your family’s continued success and harmony after you are gone.

Protecting Your Children from Their Nightmares…and Yours

You tuck your children into bed and kiss them goodnight. In the doorway, you watch them drift peacefully off to sleep. They are so innocent, so naïve. After your long day, you fall into bed and dream of the day your children will be grown. You dream you are walking your daughter down the aisle at her wedding, beaming with pride. Your dream starts out normally, but then you see that your soon-to-be son-in-law is actually a chimpanzee.

While our dreams can be a stage for many bizarre fears, this one is fairly logical. No, it’s not likely that your daughter will marry a chimpanzee. However, we have reason to be mindful of our children getting into bad marriages destined to end in divorce. In the United States, the rate of divorce is up dramatically from one or two generations ago. The rate of divorce is more than double the rate in 1940 and is up 86% from 1960. Nearly half of all marriages in the United States end in divorce.

Is it possible that your children or their descendants could be a party to a divorce? Definitely. So, how can you protect your children in the event of their divorce? A living trust. First, upon your death, you can leave assets to your children in a “divorce protection” trust. Such a trust allows your child to keep his or her inheritance from being considered marital property or community property. Your child can still be in charge of the money. He or she can be the trustee and can make decisions on the management and investment of the money. Even if the child is not the trustee, he or she may have the power to pull money out of the trust.

In addition to protecting your child in the event of his or her divorce, you can also protect them from the event of your marriage ending. If you remarry (especially if your spouse is not the parent of your children), you can ensure that your children are provided for after your death. Rather than leaving all of your assets outright to your spouse at your death, you can leave those assets in a trust.

You can leave up to $2 million (in 2007) in a “Family Trust” for the benefit of the spouse and/or children. This trust can pay income or principal for the needs of the spouse and/or children. Anything over that amount can be left in a “Marital Trust,” paying all income to the spouse. The Marital Trust could be dipped into for the needs of the spouse, or you could provide the spouse with income only. Either way, whatever is left over would be there for the kids and would not go to a new spouse.

You may not have control over your daughter marrying a chimpanzee, or even someone who acts like one. However, you can protect her inheritance so that she will be able to recover financially after a breakup. A qualified estate planning attorney can help you protect your children from divorces (www.smithbarid.com).

Anna Nicole Smith’s Estate Planning Mess

Everyone may have had enough of the Anna Nicole Smith saga by now, but I could not let the moment pass without pointing to the mess she and her attorneys created with poorly drafted documents and poor planning in general.

Anna Nicole Smith jumped from one estate planning mess to another. As you may remember, she was the short term wife of billionaire J. Howard Marshall. For many years after he passed away, she was involved in litigation over his estate because J. Howard never included her in his will. Despite experiencing first-hand the emotional, financial, and time costs of J. Howard’s poor estate planning, Anna Nicole left behind her own mess.

On July 31, 2001, Anna Nicole Smith signed a will leaving all of her estate to her son, Daniel, to be held in trust with her friend, Howard K. Stern, as Trustee. As you may recall, Daniel died on September 10, 2006, at age 20. A few days prior to Daniel’s death, Anna Nicole gave birth to a daughter, Danielynn, on September 7, 2006. Later that month, Anna Nicole and Howard K. Stern had a commitment ceremony on a yacht in the waters off of Nassau, Bahamas.

So, by late-September, there had been significant changes to Anna Nicole’s circumstances. Yet, Anna Nicole did not change her will. She did not change it to leave anything to either her new daughter, Danielynn, or to Danielynn’s presumed father and Anna Nicole’s new domestic partner, Howard K. Stern. Further, she didn’t change her will to provide a guardian for Danielynn.

Anna Nicole died on February 8, 2007. Unhappily, it seems that she did not take a lesson from the mess she experienced over J. Howard Marshall’s estate. Not only did she fail to revise her estate plan after major changes in her life, but she included provisions in her will that override state laws. Those laws would have presumed she wanted to include children born after the will was written.

The laws of California (which govern her will) provide that children born after a will is written are presumed to be included unless the will specifically excludes future children. Anna Nicole included such an exclusionary provision in her will. Further, she appointed Howard K. Stern as guardian for Daniel. However, she did not specify that he was also to be guardian for any other children she may have. So, the question of who will be Dannielynn’s guardian is currently undecided.

Anna Nicole made yet another mistake. She used a will to dispose of her property. This made her affairs a public matter. She could have avoided some of the scrutiny over her affairs if she had used a Revocable Living Trust to hold and dispose of her assets.

Do not make the same mistakes that Anna Nicole made. Review your estate planning documents periodically. Upon any significant change in your life: the birth or death of a family member; marriage or divorce; or a significant increase or decrease in your assets. In addition, make your estate plan flexible enough to allow for changes in your life which may happen more quickly than you can change your plan. A qualified estate planning attorney can help you create a plan that anticipates changes in your life and can review the plan with you at regular intervals.

For additional information on estate planning and your options, visit our website at www.smithbarid.com. Or, if you would like to schedule an appointment to go over your estate plan and make sure your plan is adequate to protect your children and your assets, please feel free to call our office at (912)352-3999 if you live in the Savannah, Georgia area or email us at info@smithbarid.com.