You are, or you are thinking of becoming, a parent. Holding your child for the first time brings on many new emotions. Having a child may lead to thoughts about your own mortality – what will happen to my precious child if I am not around? Purchasing life insurance is a common response. It’s a great first step, but read on to see why additional planning is recommended for all families.
Under this document, you name a trusted individual to act as your agent. Your agent will have the authority to act on your behalf in situations where you are incapacitated either temporarily or permanently. The document will express your preferences in regard to organ donation and life support, which will serve as a guide to the appointed agent. Medical doctors and hospitals will look to the appointed agent to make decisions concerning medical treatment and care. Every adult should have a current Power of Attorney for Healthcare.
Under this document, you name a trusted individual to act as your agent. Your agent will have the authority to act on your behalf in regard to financial matters. That authority can, but is not always, limited to times when you are unable to take care of your own affairs. Your agent will be able to pay your bills, manage your finances, investments, real estate and other property on your behalf. The powers can be as broad or limited as you are comfortable with. Every adult should consider having a current Power of Attorney for Property.
Plan for the unthinkable! If something happens to you, who will take care of and raise your children? What will happen to your property? Leaving guardianship unplanned and minor children as direct beneficiaries of your assets can have devastating results for an already grieving family. Every Will allows you to choose the persons that will continue raising your children to adulthood. Including a contingent trust in your Will ensures that your assets are managed and distributed in a manner that is in the best interests of your children.
This document is also often referred to as a “living trust” or a “grantor trust”. Unlike a trust that is created by the terms of a Will, a revocable (living) trust exists at the time it is executed. Such a trust can be created by an individual or a couple. For the trust to be the most efficient assets, need to be transferred into the trust during the lifetime of the person(s) creating the trust. If assets are held in the trust it may not be necessary to open a probate estate on your death. If you become disabled and your assets are in the trust, the trustee will be able to use those assets to pay for your care and it will not be necessary for the court to open a guardian of your estate. The person(s) creating the trust will be able to freely transfer assets in and out of the trust and to sell assets that are in the trust as long as they are able to manage their own affairs. Because the trust is revocable, the terms of the trust can be amended. The living trust typically provides for the person(s) making the trust, his or her spouse and then children and/or other descendants. There may be other planning benefits to using a trust depending on your particular situation.
If you have a child with special needs, careful planning is essential. Naming your child as a direct beneficiary of any part of your estate, including life insurance, may have the unintended result of disqualifying that child from receiving government benefits and services. The same is true of naming your child as a beneficiary under a typical revocable trust. Proper planning can ensure that the assets you wish to leave to your child are spent to enrich the life of your child. The special needs trust will also provide a way for grandparents, other family and friends to benefit your child.
An irrevocable trust generally cannot be changed once it is executed. The grantor must relinquish control of the assets. The most common reason for parents to create this type of trust is to hold a life insurance policy. Doing so removes the proceeds of the policy from your taxable estate and allows the proceeds to be managed for the benefit of the surviving spouse and your children. It is not a good idea to name your minor children as the outright or contingent beneficiaries of your life insurance policy.
Your pets part of the family too! They also need to be taken care of in the event you are unable to do so. Planning for the care of your pet will ensure that this important companion will live out its life with the care and comfort you intended.
It is not a good idea to name your minor children as direct or contingent beneficiaries of your life insurance, retirement plans, stocks, investments, real estate or any other accounts or property. Doing so may have the unintended consequence of requiring a guardianship estate to be opened for a minor child and the outright and immediate distribution of funds to any child over the age of 18, in the event of your passing. It is recommended that parents create a trust of some kind to manage the proceeds to support and benefit the child while he or she is a minor, provide for the education of the child and determine the appropriate ages at which the child can withdraw funds from his or her share of the trust.
When a parent or grandparent wishes to make a gift for the benefit of a child how the gift is made is important. It is usually not a good idea to make a large gift directly to a child. Fortunately when making a gift to a child there a number of options available. One option is to make the gift to a trust for the benefit of the child. That trust would be written to qualify for the gift tax annual exclusion. Another option is to make a contribution to a Section 529 college savings program.
Semmelman & Wisneski, Ltd.
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Lake Bluff, IL 60044
Semmelman & Wisneski, Ltd. serves clients in Illinois such as Lake Bluff, Lake Forest, Libertyville, Vernon Hills, Highland Park, Mundelein, Gurnee, Grayslake, Wadsworth, Ingleside, Antioch, Wauconda, Lake Zurich and the rest of Lake County.
Regional Nicknames: Lake County, Illinois
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