Keeping Your Estate Plan up to Date After the Birth of a New Child

My Aunt recently passed away, and her children were surprised to find that her will was from 1980, prior to the birth of all her children. The will left everything to her husband at the time and to her sole daughter as the contingent beneficiary. My Aunt had since remarried and had two additional children before passing away.

Estate planning attorneys always encourage folks to memorialize their wishes, but what happens when those wishes are now out of date? Not only should estate planning attorneys encourage people to draft new estate plans, but they should remind them that they need to keep their existing plans up to date over the years.

Life changes are important to incorporate into estate plans because they can drastically alter decisions and planning. Prior to the marriage or the birth of a child, clients may wish to leave property to parents and siblings, but that usually changes following these events. A parent may be the most trustworthy successor trustee and guardian of minor children, but if he/she passes away 5 years after the estate plan is drafted, the client needs to update those provisions to ensure his/her wishes are properly carried out.

Some of these concerns can be elevated by naming multiple successor trustees or guardians to serve consecutively. This allows for a continuity of care or asset management without the need to constantly update documents.

The birth of a new child is always important to bring to the attention of your estate planning and is usually the catalyst for a conversation about other things going on in your life that may need to be addressed, or other items in your estate plan that may need an update.

December COVID-19 Update: Still Open, Ready to Help

In accordance with the guidelines issued by the Governor of California, we take all necessary precautions to safely serve our clients. We will continue to conduct the signing of testamentary documents in the fresh air outside of our Solana Beach office, and we continue to conduct mandatory daily temperature checks, sanitization, and in-office social distancing, in addition to appropriate use of face masks. Tresp Law, APC holds employee and client safety and wellbeing as our utmost priority. We hope you are all staying safe and finding time to enjoy the holiday season.

Choosing Guardians for Our Children

When you are young and healthy, estate planning feels like one of those adult responsibilities that can wait. But this pandemic has made it clear that we cannot take our health for granted. Things can change in an instant.  Being a parent only compounds these concerns because ‘being there for our kids’ is what we do. Thinking about the alternative is almost unthinkable and choosing our replacement, known legally as a “guardian”, is possibly the most difficult choice we might make.  

Even if we are lucky enough to enjoy good health and be free from the effects of the pandemic, life happens, and waiting until tragedy strikes places our children in a precarious position. It is important to confront these decisions when we can think about them clearly. Naming guardians gives our children the gift of stability after a life-altering event.

If something happens to you, and you fail to choose a guardian for your minor child, an already devastating event could become an even more tumultuous one for your child.  A court will intervene and determine what would be in your child’s best interests. Your child could find themselves living in a foster home permanently or at least until the court names a guardian.  Usually, young children do not get a say about who will care for them.  This means that several individuals could petition the court requesting guardianship which can result in a protracted, expensive and possibly contentious court battle.  

Each state puts forth their own legal requirements for naming a guardian. Generally, a guardian must be at least 18 years old, of sound mind and not incarcerated.  But parents often have more specific criteria for choosing who will take care of their children. A few things to consider might be:

• Physical Ability – Grandparents might seem like an ideal choice especially you’re your own parents are in good health and physically active. But what happens when your children become more active and grandparents start to slow down. If you have a child with special needs, that child might require care for a longer term.

• Emotional Stability – Aunts and uncles might be a wonderful option. A younger sibling might have the energy and potential longevity. However, if they have thus far only been accountable to themselves, finding themselves suddenly responsible for the care and welfare of one or more young children might be an overwhelming and abrupt life adjustment.

• Shared Values – If parents have specific wishes about how a child should be raised, or would like adherence to specific religious practices, it is important to convey these things to anyone named as a guardian.

• Location, location, location – If the people you have found to care for your brood live in another state, it is important to spell out whether you expect named guardians to move to live with your children or vice versa. 

• Playing to Strengths – We might have chosen the perfect person to care for children. They are loving, nurturing and dependable.  Yet, despite those great qualities, they have no clue how to manage money. What happens if our children inherit assets or have accounts that need managing? In most states, including California, we can name different people to serve in different capacities. We can name a ‘guardian of the person’ who will have physical custody and provide the day-to-day care for our children. We can also name a ‘guardian of the estate’ who will manage and protect the child’s finances. 

• Backup – Sometimes our best laid plans do not always come to fruition. Our first choices may not be in a position to take care of our children when the time comes, either personally, financially or physically. It is important to consider naming additional people.

We can help walk you through these and other important considerations and prepare documents reflecting your particular family’s needs.

The SECURE Act and What this Means for your Current IRA

Individual Retirement Accounts (IRAs) are widely used throughout the United States as a vehicle to save for retirement. A Traditional IRA allows the owner to deduct the amounts contributed to the IRA from his or her taxable income. This is, as you can imagine, a wonderful benefit to the owner. The assets are allowed to grow in an IRA without tax consequences, and only upon withdrawal of those amounts are they taxed to the owner.

What happens when the owner of an IRA dies though, does anyone need to pay the income taxes on those amounts?

When a designated beneficiary of an IRA receives the funds after the original owner dies, he or she must begin taking required minimum distributions from the account. Prior to 2020, the designated beneficiaries were allowed to use their own life expectancy to calculate the amount of that annual distribution. This was a great benefit to the beneficiary, especially if he or she were young because there were many years over which to withdraw the funds. By spreading out the withdrawals over more years, the income recognized in each year would be less and thus not have as much impact on the individual beneficiary’s income tax return.

This procedure all changed in 2020. Congress passed and the President signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) on December 20, 2019. The Act included language which directly updated the stretch provisions described previously. Now instead of allowing the beneficiary to take the distributions over their lifetime, the time period is shortened to a flat 10 years. There are some exceptions to the new rule, but they address very specific circumstances.

Tresp Law, APC makes it a point to discuss the implications of the SECURE Act with all of our Estate Planning clients to ensure they are aware of the complications that can arise by making a Revocable Trust the beneficiary and how that works with designated beneficiaries. Call for a consultation appointment today.