When it comes to estate planning, many people think that only the extremely wealthy need guidance. In reality, everyone can benefit from some well thought out estate planning advice, especially families with young children.
There are many issues that young families should consider when developing their estate plans with the aid of counsel. For example, every parent should have an estate plan that includes a will or a revocable living trust, a financial durable power of attorney, a healthcare durable power of attorney, a living will and — potentially — an anatomical gift declaration and a directive for disposition of bodily remains. Parents may also want to consider purchasing life insurance.
In particular, parents with minor children should have a plan in place in the event that a catastrophic event occurs and both parents become unable to care for minor children. One of the most important aspects of such a plan includes the choosing of guardians. It is advised that parents designate a guardian in their wills, including at least one successor guardian in the event that the original designee is unable or unwilling to serve when needed.
Parents also can, and should, make provisions for their minor children in their power of attorney documents. A parent, by a properly executed power of attorney, may authorize an attorney-in-fact to make healthcare decisions on behalf of one or more of the parent’s minor children in the event that no other parent or guardian is readily available and authorized to give such consent.1
A parent can further nominate a guardian for a minor child, whether or not that child is born at the time the parent makes the durable power of attorney, to continue during the disability of the parent and/or during the minority of the child.2 Making such designations ensures that the appropriate people will assume responsibility for minor children in the event that the parents become incapacitated or are unavailable during an emergency.
Having durable powers of attorney in place is important for many reasons beyond care for minor children. Such documents help ensure that the wishes of married — and unmarried — persons are accomplished. A financial durable power of attorney may be used to grant an attorney-in-fact the power to purchase, convey, encumber, lease, improve and otherwise deal with real estate, as well as the power to buy, sell or trade financial securities. Among other powers, attorneys-in-fact may also have the power to amend estate planning documents, make gifts and create trusts, limited liability companies or partnerships.
A healthcare power of attorney may be used to allow an agent to make all healthcare decisions for the principal, including consent for medical procedures. Among other powers, a healthcare power of attorney may also grant the agent the power to arrange for the principal’s hospitalization, convalescent care or hospice, nursing home or home care; to summon paramedics or other emergency medical personnel and seek emergency treatment; and to revoke, withdraw, modify or change consent to procedures, tests and treatments. Powers of attorney also are used to grant access to a principal’s medical records.
Parents with young children may also want to consider whether their estate plan should include a provision for a trust to be set up for the children. A trust can be set up for a child’s lifetime or until a child reaches a certain age. In addition, parents may find asset protection provided by a trust to be valuable if the parents intend for the trust to last for a child’s lifetime or at least until the child is an adult. The asset protection provided for in trusts protects child beneficiaries against creditors. Such asset protection is important when a child beneficiary is married to, or might marry, an untrustworthy spouse, or works in, or might someday work in, a high-liability profession.
Parents may also want to take advantage of the Uniform Transfers to Minors Act. Under the Uniform Transfers to Minors Act, a parent may transfer assets during his or her life3 or at death4 to a custodian for the benefit of a minor. The custodian then collects, manages and invests the custodial property for the benefit of the minor.5 The assets held in the UTMA account are thereafter distributed to the account beneficiary when the beneficiary turns age 21. A parent can, however, extend the age of distribution to age 25.6
Further, trusts should be considered for couples who will likely have a taxable estate. In 2007, the federal estate tax exemption is $2 million per person or $4 million per couple. The Washington estate tax exemptions are the same. These exemptions mean that each person can pass $2 million at death, free of federal and state estate taxes. While the future of the federal estate tax is unknown, the Washington estate tax presumably will remain at $2 million per person. An estate plan for couples with a taxable estate should make appropriate use of each person’s exemption by creation of trusts, so that as much money as possible can pass to the couple’s children free of estate taxes.
In addition, an important element of any estate plan is the disposition of benefits under insurance policies, annuities, qualified retirement plans and individual retirement accounts. These benefits are not governed by the postmortem provisions of one’s will or revocable trust unless the beneficiary designations specifically so provide. It is important that beneficiary designations be appropriately drafted to take advantage of the contingencies that are addressed in one’s will or revocable trust, as well as asset protection features.
For families that include same-sex couples or unmarried parents, even more factors should be considered when developing an estate plan. Washington’s new domestic-partnership registry, which was signed into law on April 21, makes some new protections and benefits available to same-sex couples and couples where one party is at least 62 years of age. However, the domestic-partnership law does not address division of assets and liability in the event that a relationship ends. In that regard, couples may benefit from supplementing their estate plans with private agreements that address such issues. Estate plans should also address the possibility of the couple not being together at death.
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Sarah B. Bowman is an associate in the Trusts and Estates Department at Karr Tuttle Campbell. She can be reached at 206-224-8155 or sbowman@karrtuttle.com.
1 RCW § 11.94.010.
2 Id.
3 RCW § 11.114.040.
4 RCW § 11.114.050.
5 RCW § 11.115.120.
6 RCW § 11.114.090.
