Protect your child’s future

by David L. Danzig

Careful estate planning is a key component in ensuring that your children’s futures will be secure

With changing tax laws and increased mobility in the world markets, it has become even more difficult to protect the future of your children. A child’s overall well-being is one of a parent’s constant thoughts. Though the subject is an unpleasant one, it is extremely important to examine the impact your death would have on your child. Careful estate planning is a key component in ensuring that your children’s futures will be secure.

Make sure to have a will drafted by an attorney, in which you name one or more individuals to be the legal guardian of any child, typically until he or she reaches the age of 18. The guardian will oversee all decisions involving the care and upbringing of the minor. Certainly, this person should be consulted before the will is drafted, as it is imperative that he or she understands and accepts such a large responsibility. It is equally important to designate a successor guardian in the event the primary guardian is unable or unwilling to accept such a responsibility at the time. This occurs more often than you may think. Having separate guardians for the finances and for the care of a child is not uncommon. Remember, the person best suited to raise your child may not have the ability to handle the money needed to complete the job!

While a child may grow to be an adult in years, he or she may not be mature enough to oversee your remaining assets such as property. A trust can be established to protect these assets no matter what the child’s age. Trusts can protect all, or a portion of, the assets for anyone you desire and can continue until the death of the child or beyond. The most important aspect when establishing a trust is selecting a trustee. This individual will manage the assets and make distributions, as well as make decisions based on the instructions you have dictated in your trust document.

Under current tax law, the amount subject to estate tax and the percentage to be taxed on the remaining estate will decrease each year until 2010, at which point the estate tax is repealed. Do not get excited though; unless the current law is extended by Congress, it will be reinstated in 2011. Thus, with so much uncertainty, it is always crucial to consult with an attorney and tax advisor.

Not only could there be federal taxes, but some states have their own inheritance tax! Additionally, remember that IRAs, pensions, deferred compensation, etc., could be subject to income tax. Since an estate can be taxed in various ways, an appropriate plan of attack must be designed. If such a plan is not established, the estate you believe your children are inheriting could be a fraction of the original number.

Finally, to protect the estate for the children, make sure to have an up-to-date power of attorney, health care proxy and living will. The power of attorney gives another person the right to pay bills on your behalf and manage finances according to the terms of the document. The health care proxy and living will give you, while you are alive and well, the opportunity to express your desires of life support and treatments, as well as make medical decisions regarding how you should be cared for in the event you are unable to do so. These are some of the key elements to protect your estate, your family and your children. Though some of these decisions may be unpleasant, they are necessary no matter what your stage of life!