YOU GOTTA BE KIDDING!
By Timothy S. Barkley, Sr. October 2015.
“You gotta be kidding!” Her voice was excited as she looked down at the test results. “We’re pregnant! After trying and trying … we’re finally pregnant!”
He smiled and grasped her hand, squeezed softly. Their eyes met and both chorused “Now what?”
Fast-forward nine months. A little bundle of joy has descended into their lives and transformed them and their relationship. The baby’s room is decorated, the clothes bought and handed down, and Mom and Dad are enjoying the beneficent sleep deprivation that comes with being new parents. But there was still a nagging feeling that something was missing.
It was Mom who realized it – it’s usually Mom who knows what’s missing. “Honey, we need a will. Who’s going to take care of the baby if something happens to us?” He nodded. “Gee, I hadn’t really thought about that. And we can’t just leave the baby the house … or our 401’s and IRAs and life insurance … I guess we need a trust or something.”
The arrival of a new baby is what this writer calls a “mortality point.” Folks are usually too busy trying to keep up with jobs and kids and houses and hobbies to worry about the bad stuff that might happen. And many – especially men – seem to think that their impregnability and immortality and invincibility will be jinxed if they create a will. But at certain points, folks realize that they won’t live forever and that they need to take care of things in that eventuality.
A will is the only way to name a guardian in Maryland. Without it, the decision is left to a judge. And if you leave more than $10,000 to your child outright, a court-supervised custodian must be appointed to handle the funds. Better that you decide the terms of the trust holding your child’s money, and decide who the trustee should be.
A common plan is to hold the family assets, after both spouses have passed away, in trust for the child. Life insurance can be paid to the trustee of the trust as well. A trusted family member serving as trustee makes sure expenses are paid and education is funded. Any remaining assets are distributed to the child at an age the parents decide is responsible. In the interim the trustee can advance money for worthwhile causes such as buying a home or starting a business.
A will naming a guardian and containing the terms of a trust for the child or children, or a living trust containing those terms, can provide the foundation of a plan. Coupled with appropriate education funding, financial instruments and insurances, responsible parents can be sure that they have faithfully discharged their duty to those whose lives have been entrusted to them.
Trust planning for children requires balancing the desire to protect the child from the proverbial irresponsibility of youth and the need to protect the child from an overprotective or controlling trustee. Thus, most trusts will make full payout to the child at a definite time or in stages as the child hopefully attains maturity.
A well-drafted trust will also take into account possible future outcomes such as a child who develops a drug or alcohol dependency or who is incarcerated, or a child who fails or refuses to provide for his or her dependents. For example, the child’s inheritance might be retained in trust for his or her benefit at the discretion of the trustee. This can keep the child’s inheritance from being available to fuel the child’s creditors, or worse, to hasten the child’s demise.
Children or others with special needs require careful planning and more sophisticated planning vehicles. For example, trusts for children in “ordinary” life situations might be expected to last for a decade or two, a trust for a special-needs child would last a lifetime. Such a trust must additionally be able to withstand demands from well-funded and highly-motivated creditors such as the state Department of Health and Mental Hygiene seeking reimbursement for benefits.
A trust for a special-needs child is not a “special-needs trust,” oddly enough. That moniker refers to a specific kind of trust that provides for the reimbursement of the DHMH after the death of the child for all benefits received by the child during life. A properly drafted trust for your child will rather provide for “supplemental” benefits to your child, supplementing public benefits in the discretion of your trustee. As long as the inheritance is not directed to be distributed outright to the special-needs child under the terms of your will, the funds are protected and, after the death of the special-needs child, can benefit your other children or grandchildren.
Is your plan up-to-date? Contact your planning professional today.
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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