Estate Planning Basics
When considering estate planning, it is important to remember that the state that you live in already has laws that direct what happens to a person's estate when they die. These are called intestacy laws. There are also laws that direct people who would take care of your estate once you are gone. You should find out about these laws in your state, and if you don't like them, then you need to make your own estate plan. If you do nothing, the state will decide what happens to your assets, children, etc. Planning for your estate is a very important part of personal financial planning. Here are a few examples of situation that can be resolved with some simple estate planning. Example #1 Most married people would like for their assets to be transferred to their spouse upon their death. This is usually what will happen, even if no planning has been done at all. However, some states require that only a portion of the assets are transferred to the spouse and some are transferred to the children of the deceased person. This could be a very bad thing if the surviving spouse needed those assets to live on, but they went to the children. What if the children don't want to give the money back?
Click here to see how this can easily be resolved. A man and a woman got married later in life and they both have children from previous marriages. The man dies and leaves all of his assets to his wife (from the second marriage). Years later, relationships between her and the deceased husbands children are strained, and she decides to leave all of the money to her own children. She leaves nothing to the children of her deceased husband.
Click here to see how this can easily be resolved. A man dies and leaves his estate to his daughter who is married and has 2 children. The daughter was his only child, was happily married, so that seemed like the logical thing to do. Not long after the fathers death, the daughter's husband decides that he wants to get a divorce. Guess what? Now he gets half of all the money that the daughter inherited from her dad. This also means that the 2 grandchildren may not ever see any of that money that the husband gets.
Click here to see how this can easily be resolved. A husband and wife are happily married and have 3 children. The husband dies and leaves a sizable estate to his wife and children, mostly proceeds from a life insurance policy. A few years later the wife remarries. Without proper planning, this new husband is now entitled to 1/2 of her assets if they divorce. And if she dies first without proper planning, she would leave all of her money to him. What if he has children of his own from a previous marriage? What if he was just marrying her for her money? Making Equal Gifts To Your Children
We learn from a very early age the concepts of equal and fair. My children remind me of this every time I take one of them out for a one-on-one to get a treat somewhere. When we get back home, at least one of my other kids will say, "That's not fair!" Even though I try to spread these trips around so that everyone gets an equal chance to hang out with dad, someone always feels cheated. The last time I did this, I told my son as we pulled into the driveway, "Make sure you hide your drink cup so that no one gets mad." But it didn't work. Somehow it slipped out that he got a treat, and for a few minutes all heck broke loose.
While going to get a burger and shake may not seem like a big deal, the stakes get much higher as children grow older and parents start making financial gifts, or giving financial assistance to them. In personal financial planning, reducing a person's estate is often a concern. Many people who are in a position to do so, will make financial gifts to their children for estate planning purposes. This is usually done when someone is trying to reduce their taxable estate, or just to let their kids enjoy some of their inheritance early. Additionally, parents will often give financial assistance to children when there is a need. While there is nothing wrong with giving money to your children, you need to be very careful in how you do this so that nobody screams, "That's not fair!" Equal gifts, but not equal needs In estate planning, every family that has adult children knows what it's like to have at least one child who has a greater financial need than the others. Parents are often naturally inclined to want to help this child out a little more than the others. This is where it can get a little sticky. If a parent gives money to one child and not to the others, they take a chance of driving a wedge into the family. While you may think you are doing that child a favor, (and you are) your other children may not feel the same way about it when they find out. I have seen several situations like this where siblings who were better off financially felt left out, cheated, and maybe even less loved, because their parents didn't give gifts equally. I've seen this drive a wedge between siblings, and between parents and children. Leaving more to one child I've also seen estate planning situations where parents left more of their estate to one child when they passed away. Again, this was a case where the parent felt that this particular child had a greater financial need and would benefit more from the larger inheritance. While this may have been true, the child who inherited less was left to feel left out and somehow less loved. Even though this is done with good intentions, it can really tear a family apart. The more well-off child resented the sibling that was left with a bigger inheritance, and at this point the two have not spoken to each other in about 10 years. Is there a better way? Only you can decide the best way to handle these situations. But I have seen some different things that people have done to try and make . In estate planning one situation, a child was having some financial difficulties and the parent wanted to help them out. They made an agreement that any money the parent gave them now would be deducted from their final inheritance when the parent passed away. I thought that this was a fair way to help the child out now, but still be fair to the other children in the family. I have seen other families require the child to pay back the money over time, but with little or no interest. This method helps the child out now and allows them pay the money back when they get back on their feet. There are a lot of ways to deal with these situations in estate planning that allow you to help out a child in need. While it's easy to think, "My other kids don't need this money", you may not be doing them a favor in the long run. You may in fact be setting them up for family contention down the road if you don't give equally to all of your children. Even if they don't need the money as badly, if another child gets more, there could easily be feelings of resentment and bitterness towards the other child, and towards you. No one wants to be remembered that way. Click the links below to learn more about the basics of estate planning, and how to protect the ones you love. Will
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