No one knows what the future holds, that is why planning for it is so important. We make sure our clients plan for many different scenarios, but unfortunately, not everyone else does.

*But I Named a Guardian for My Child*

Ok–you sat down with your attorney and named a guardian, which is great, don’t get me wrong! But say you and your spouse pass away leaving your child with their grandparents. Then your parents pass away or just become unable to care for them any more, but your child is still in need of a guardian. What happens then?

To be honest, there is not always a good result in these situations. Your child could be put into the social service system until another relative is located. Even if there are multiple relatives who want to be your child’s guardian, that could lead to problems as well. There will likely be court battles, which could mean your child staying in the foster care system for an even longer time. Then there is the expense and heartache of litigation. And there is always the possibility they could end up with someone you would not want them to, when a judge who doesn’t know you or your family makes the decision for you.

*Avoid The Situation Altogether*

The best way to make sure your child goes to the right person if your first choice guardian cannot care for them is to name back-up or successor guardians. A successor guardian is an alternate in case something happens to the first guardian. The successor guardian has no legal claims over your child unless the first guardian is no longer able to care for them. You can name as many successor guardians as you like so you won’t ever have to worry about the right person taking care of your child.

You should always have a backup plan, and make sure to plan for multiple scenarios.

*Think About the Right People, not the Perfect Person*

I know you want to have the perfect person picked out in case you and your spouse were no longer able to care for your child. But don’t think about the perfect person (that person will always be you), think about the right people. Think about the people you love and trust, the ones who share your values. The ones who would love and care for your children like you would. Those are the people who would make the best guardians.

Sitting down and making a plan for your child’s future can be a daunting task for any parent, but it is an important one, especially for those parents who have children with special needs.

*What is a Special Needs Trust? *

When someone you love has a mental or physical disability, a great way to help provide for their future is by setting up a Special Needs Trust, which is also known as a Supplemental Needs Trust. Simply put, a Special Needs Trust allows you to put an unlimited amount of assets into a trust for your special needs child, either now or upon your death. Placing assets into a trust, rather than passing them directly to your child, can help preserve their eligibility for certain government programs and assistance such as Supplemental Security Income (SSI). The purpose of this trust is to provide supplemental assets for your child’s care and wellbeing, while still allowing them to qualify for government benefits.

To make the explanation easier, here’s a scenario. Lets say you have a son with Downs Syndrome. He is the light of your life, but you know that when you’re no longer around, his living situation will likely change. He may ultimately live with a trusted relative/family friend, but you know he won’t be able to live independently. You pray that you have plenty of time to plan for that, but life doesn’t always work out the way we hope. If something were to happen to you before your plans were drawn up, the courts would likely appoint a guardian for your son and an administrator for what would then become HIS assets. Those assets could potentially disqualify him from receiving any additional government assistance. Some simple planning would have allowed you to decide on who would be your son’s guardian, and who would look after your money, rather than allowing a judge who doesn’t know your son to do it. Additionally, setting up a Special Needs Trust would allow your assets to be distributed for your son’s benefit by a trustee (whom you can select), in the ways you feel would be best. For example, your money could be used to ensure that he always has money available to go bowling or horseback riding, afford trips to visit other family members, or even allow him to buy birthday presents for his siblings. In other words, he could continue to receive government support while still having access to additional assets to make his life easier-the best of both worlds.

*Picking a Guardian and a Trustee For Your Child *

The guardian you name to care for your child and the person you want to safeguard, invest, and distribute your money for their benefit don’t have to be the same person. They could possibly be one and the same, but they don’t have to be. The guardian you choose should be the person who will love and care for your child the way you would. The trustee could be a relative, trusted friend, or even a bank or other financial institution. The important decision here is that the trustee be good with money, and someone you trust. It is important to be aware that a corporate (bank or institutional) trustee will always charge a percentage of the trust’s assets for administering the trust, but they may still be the best choice for your situation.

*What if You Just Leave All Your Money to Your Child Without Special Needs, Knowing They’ll Take Care of Their Sibling? *

Ummm…it might not necessarily work out that way. That’s not to say your child who isn’t special needs doesn’t love the one who is. We never know what the future holds, and there are numerous situations where the one sibling won’t be able to use all of the given money to care for the other. For instance, once your assets are passed to the other child, they legally become theirs and could be exposed to:

Divorce Bankruptcy Creditors Lawsuits Further, if they should die before their special needs sibling, the money would probably go to their spouse and children, not their sibling. Once the assets are passed, there is no way to legally force anyone to share that money with your special needs child.

*The Bottom Line*

Having a child with special needs can be incredibly rewarding and overwhelming too. One of the best ways to provide for your child is to plan for their future. If you have any questions about this or any other planning concerns, please contact us for more information-we would be happy to help.

Or maybe it’s just a day on the calendar, and we can make it whatever we want it to be.

*How Will Your World End?*

Ayn Rand wrote one of the most widely read novels in history when she penned *Atlas Shrugged*. In an interview, Rand once said something to effect that the world would end when she died.

Does that statement make Ayn Rand the most self-centered person ever? Probably not, though she did write another book on the virtues of selfishness. That’s beside the point. What Rand meant by her statement is that at death, *her*world would end. And since we all live in our own worlds . . . since it’s impossible to live in anyone else’s world or to walk in another person’s shoes, death is the end of the world for all of us.

Have you ever thought of it in those terms? If not, maybe 2012 will be the beginning of some new beliefs for you.

*The Point to All of This*

There is a point to all of this. Specifically, it’s this: Life is important. The importance is defined by the meaning we choose to assign to events, and it is defined by the decisions we make and the impact we have on our loved ones.

We are generally good at making choices. We choose careers and modes of productivity to impact our planet, sometimes even long after we’re gone. We choose spouses, friends, and hobbies. Life is about choice.

In some sense, death is about choice, too.

*Choices That Take Effect When Our Worlds End*

For far too long, estate planning has been considered something that only the elderly need—for those people who are established and on the downhill side of life. Fortunately, there has been a popular movement aimed at showing young professionals and families that they too need estate planning, especially when young children are involved.

The reason is simple: An estate plan puts you in the driver’s seat. It allows you to choose who will raise your children, who will manage your assets, and who will carry on your legacy if your world happens to end prematurely. These are all choices you can make today that will have the effect of law, whether you pass away next week or in sixty years. And if you fail to make these choices, they will be left to a judge—a total stranger with the discretion to act as he or she chooses without regard to what you “might have wanted.”

*Make 2012 Count*

You can make 2012 count in a major way by starting the year off with bold action. Don’t wait to create a plan. Waiting will never help when it comes to estate planning, and it could be absolutely catastrophic in some cases. Make your plan now. Set the wheels in motion so that if anything does happen to you, you’ll be remembered as the person who made sure everyone was cared for.

Well, that’s not entirely true. You can write your Will on a napkin – “I leave everything to my wife / husband” – and I guess that would fit the “Simple Will” definition, and in some states it would even be legal. If you have no life insurance, no children, no assets, that Will (or none at all) is probably sufficient. Don’t bother going online or to a “Will party” (kind of like Tupperware, or jewelry, or Avon, or unmentionables) where you’ll pay somewhere between $99 and $500 for a Will you probably don’t need. See – I’m fulfilling my money saving promise already and we’re only 1 paragraph in!!

Even if you do have some assets – a jointly owned house, a joint bank account, even an investment account or some life insurance – as long as those assets are titled properly (joint tenants with rights of survivorship, for example) or have beneficiaries properly named (whoever you want them to be as long as they are over 18 years old), you still might not need a Will (those are called “non-probate” assets, and pass to the other owner, or the beneficiary, automatically upon your death, regardless of what your Will states). Besides those assets, you can write a brief letter leaving your beer can collection to your old college buddy and that picture of you with your brother and Bruce Springsteen to your brother (or Bruce – totally up to you).

However, when you have kids, a good life insurance policy, or some assets solely in your name, everything changes. The napkin, the $99 Will, and even the $500 Will are likely no longer sufficient to do what you are likely trying to accomplish. Here are just a few reasons why:

1. Your child, if he or she is a minor, cannot be the beneficiary of any of your insurance policies, investment accounts, bank accounts, or other assets. If he or she is, the state will take the money and appoint a guardian (also known as a conservator) for the assets until the child turns 18. On their 18th birthday, they will get handed a very large check. I can assure you that there is no better way to dissuade a child from going to college than by handing them a very large check on their 18th birthday. This can easily be prevented by placing the money into a trust for your child with a trustee that you name to manage the assets and distribute them as you see fit . While you’re at it, you can also name a guardian for your child just in case something happens to both you and your spouse. That way, you get to decide who raises (or doesn’t get to raise) your child, rather than letting members of your family and your spouse’s family fight it out in court.

2. Your spouse will receive all of your assets. After an undoubtedly long grieving period, he or she may decide to get remarried, at which point the only logical thing to do will be to open a joint bank account with the new Mr. or Mrs. Wonderful. Should your spouse die before Mr. or Mrs. Wonderful, Mr. or Mrs. Wonderful will probably be the beneficiary of all of that money – and it will be solely at his or her discretion whether your children ever see a dime of it. Or , if they should get divorced, those assets could get split as part of their marital estate. Again, this can easily be prevented with some simple planning, which will ensure that your children receive any wealth not spent by your former spouse and his or her new spouse (and if you want, you can even prevent them from blowing all of your money on bottles of champagne to celebrate their love).

3. Taxes! In NJ, the estate tax kicks in for any estate valued at over $675,000. You would be surprised how quickly an estate can hit that figure (add up the equity in your home, your 401K, any other investment assets, any other physical assets, and your life insurance policies, and you’re likely there or exceeding it). Upon your death, there is no tax paid on any assets passing to your spouse (its called the spousal exemption – just one of the benefits of marriage!). Upon your spouses death, however, the state government gets to take a bite of every dollar over $675,000 and the federal government gets to take a bite out of every dollar over $5,120,0000 (and this number is scheduled to drop to $1,000,000, with the top tax rate going from 35% to 55%, in 2013). There are many ways to shelter a portion of your assets from moving into the taxable estate of your spouse, thus preserving more money for your children and keeping it out of the hands of Uncle Sam. You aren’t going to get that with a $99 Will.

Some people really don’t need a Will at all – they just need to title assets properly, name beneficiaries where they can, skip having kids (or be comfortable leaving them nothing), and stay under the federal and state estate tax exemptions. These people don’t even need the $99 Will – just save your money and skip it – you’re probably OK without it.

However, if you have kids to whom you would like to leave assets, if your net worth falls above the estate tax exemptions (don’t forget to include life insurance), or if you want to protect the assets you leave behind to your spouse from divorce, creditors, or lawsuits, you should absolutely have a Will – and the $99 one (and even the $500 one) likely won’t cut it when you need it most.

One of the points that came up in the story focused on how, over the years, there has often been opposition to research. For instance, when HIV was first discovered, there were groups who were morally opposed to funding studies on the virus because they felt it was some sort of divine intervention. More recently, a segment of the population has sought to prevent research using stem cells. The author then went on to explain that many scientific discoveries are made not because of the original focus of the researcher, but merely as a fortuitous detour, “Cures rarely happen with a flash of brilliance and cries of eureka, but their methodical unfolding fuels the dreams and enterprise of science.” The discoveries that are made on the way to the planned destination are often more significant than anything that could have been originally imagined.

This made me think of some of the situations that I’ve encountered as I have helped people with their own planning. Initially someone will call and say something like, “I’m going on an adventure vacation, and I need a will.” When we sit down and begin the process of looking at not only what they have, but what is truly important to them, we discover that a will is possibly the least important thing that they need right now. As we talk about everything that is important to them: their spouses; their children; their parents; their friends; and even charities, it becomes more and more clear that they aren’t just worried about who gets their piano and their stamp collection, what they really want is to make sure that everyone is taken care of (emotionally, physically, and financially) after they are gone.

It’s not always a simple conversation, but I try to make it easier. I’ve done this before, and can help to focus on issues that may never have even crossed their minds. Together we uncover the big picture, and come up with a plan that truly accomplishes their goals. They leave for their vacation confident that they have begun a relationship that will help them provide for their loved ones, protect their own wishes and desires, and preserve all that they have worked so hard to build.

After years of renting, a friend of mine just bought his first house. His timing couldn’t have been much better. He got a great deal on the property, and a 30 year mortgage under 4%. Way to go!

In putting together his finances, he had to figure out from which accounts to get his down payment money. He has the usual mix of bank accounts and a brokerage account. Like most of us, his brokerage account has taken a beating lately, so if he sold any stocks he’d be locking in his losses. His consolidated banking statement showed a checking account and three savings accounts, into which he had been making automatic monthly deposits. Two of the three savings accounts were titled, “In trust for …” his nephews.

Being single, he thought it would be nice to put money away for his two nephews to help them out later when they went to college, got married, or bought a house. So, for many years he had been stashing money away for them in these accounts. He’s never even told them.

When he asked for advice as to which securities to sell to finance the down payment of his home, I suggested using some of his cash instead. Between the three savings accounts there was more than enough money available. He could sell some stocks over time to replenish the accounts, and hopefully avoid taking a big hit.

He didn’t realize that he could take money out of the two accounts held “In trust for” his nephews. He was under the impression that he had essentially given them the money already, that they were “trust funds.” I had to explain that in order for a gift to be legally effective, the person making the gift has to intend to give it, AND the gift must actually be delivered and accepted.

What my friend had actually done was set up what is known as a Totten trust by titling the accounts as he did. He didn’t realize that these “trusts” could be revoked at any time by him, either by closing the accounts or by executing a will which disposes of the property in the accounts. He was also shocked to learn that he is still responsible for all of the taxes, and the funds in the accounts could be reached by his creditors during his lifetime.

My friend ultimately decided not to use the money that he had allocated for his nephews for his down payment, but we have set up a time to put together real trust funds for the kids, ones that would leave him in control of the money while protecting it from creditors (his and theirs), and give him the satisfaction of knowing that he was able to provide a little something extra for his family.

When I had my first child, my boss at the time approached me and asked if I had a life insurance policy. I didn’t, only because it was something I hadn’t thought of yet. I was sleeping for 2 hours at a time due to the screaming baby, so I wasn’t thinking about lots of things. Of course, I soon did the same thing most new parents do very soon after having their first child – I made an appointment with an insurance agent and bought life insurance for both me and my wife.

Most parents stop there, thinking they’ve done all they can to ensure that, should something happen to them, their spouse and / or their children will at least have adequate funds to maintain their current lifestyle…they click the seatbelt. An Irrevocable Life Insurance Trust (ILIT) makes having life insurance even more effective….like adding the airbag.

Parents who have an ILIT as the beneficiary of the life insurance policy, rather than their spouse or their children, have added an extra layer of protection for their families.

First, an ILIT keeps the dollars outside of the taxable estate, thus potentially lowering the estate tax bill and saving their heirs thousands of dollars. The proceeds from the insurance are kept in the trust for the benefit of the beneficiaries, rather than going directly to the beneficiaries. This not only keeps the funds out of the estate of the deceased, but also outside of the estates of the heirs, potentially saving future beneficiaries estate taxes as well.

Second, and another advantage of the proceeds being kept in trust, the assets are shielded from creditors in most circumstances. Thus, if my wife is later sued, gets into trouble with a creditor, or goes through a divorce from a later marriage, the assets in the ILIT from the life insurance are protected and are more likely to pass my children. She can generally use the assets as she sees fit, but creditors can’t get to them.

Finally, I can maintain control, at least in part, of the assets even after I die. I can control the circumstances under which the assets are distributed and when they are distributed. I can keep my children from getting the assets when they turn 18 (should I choose to do so), by setting ages or even education targets (like college graduation) at which time the money, or a portion of the money, is distributed. I can encourage positive behaviors (through distributions for starting a business) and discourage negative ones (eliminating distributions in the event of a criminal or a drug conviction).

For these reasons, among others, parents should consider transferring their life insurance policies to an ILIT. The additional protection is worth it. So are airbags.

The weekend got me thinking about guardianship issues and some recent clients that we’ve helped who have young children. The selection of a guardian should something happen to both parents is obviously one of the largest issues that we deal with for that group of clients. The default choice that they usually come up with is family member, but a closer look will sometimes cause them to reconsider.

Think about it – you and your spouse are suddenly gone and your children, regardless of whether they are 17-months old or 17-years old, are traumatized. Sometimes, the best thing for them is to maintain something at least resembling their usual routine. Your wonderful sister on the other coast, who they see once a year, or even the one that lives 45 minutes away, may not be the best solution. Nor may be the 30-year old brother who just got married but has yet to start a family of his own.

Who would be able to keep the kids in their current schools? How about on their current schedules? Who would be able (and willing) to drive them to dance, soccer, gymnastics, and their classmates’ birthday parties? Some kids, depending on their ages and proximity to family members, are more comfortable with their friends’ parents, who they see at pick-up and drop-off and social events almost daily, than they are with some family members.

We don’t recommend relatives over friends or vice-versa – we simply suggest a thorough analysis before making the decision. Some of our clients have discovered, through much thought, discussion, and self-assessment, that their default option was not necessarily the best one. We’re happy to help with that conversation.