If I Die Now, How Will My Children Pay for College

 

Estate planning is done to ensure that your plans for your children are carried out, even if you die now. So, how do you accomplish your goal for guaranteeing that your children will have the funds to attend the college that you have in mind for them?

There are 2 ways to accomplish this goal. The first is a Section 529 college savings plan. Every state offers at least one of these plans. Contributions grow tax-deferred. Withdrawals are tax-free when used for qualified education expenses. The name “Section 529″ is derived from the part of the Internal Revenue Code that governs the requirements for each plan. Anybody can contribute to a Section 529 plan, including grandparents and friends of the family. This lets people give the gift of education. The money in the plan is controlled by the account owner, not the child. So if the child decides to not go to college, they do not have access to the funds as they would with a Uniform Gift to Minors Act (UGMA) account. But the funds are there for your child’s use if he/she is named as the account beneficiary. You must set up a separate account for each child. If one child does not use the funds in his/her account, the account owner can switch the beneficiary to another child. Currently, the funds in the Section 529 account grow tax-deferred. If they are used for college tuition, room, board, fees, and books, the withdrawals are federal tax exempt. Funds in the Section 529 plan are not part of your estate, so they are not subject to estate tax. You should consult a financial professional and an estate planning lawyer to understand how a Section 529 plan fits into your plan to amass the large amount needed to pay for college these days.

If you don’t have a college savings fund, your will can establish a trust fund for your children’s college education. Trusts are not just for the wealthy. They can be funded with the proceeds from a life insurance policy. Trusts allow you to control how and when the money will be used and how and when the money will be distributed. You can create a trust that will continue through a child’s undergraduate education and any money left over could be distributed to that child after graduation or could then be transferred to another child. Or, the trust could be used for both undergraduate and graduate or professional education. You can have the trust created so that the trustee has no discretion over the distribution of the trust funds or total discretion.

So, do not think that, just because you might die early that your children will not have the funds to attend college. But, you must take action to put your plan into effect. Your lack of action leaves your children without the proper protections and funds.

 

How to Choose an Estate Planning Lawyer

 

You have a pediatrician for your children, a cardiologist to treat your heart problems, and a gynecologist for your annual pap smear. Do you have a lawyer for each type of legal problem you have? Law is like medicine – there is so much to know that you need a specialist, depending on what your legal need is.

Estate planning lawyers help you with protecting your family’s assets by drafting the legal documents you need to carry out your wishes. You disclose a lot of very personal information to an estate planning lawyer so you want to know that the person you choose is trustworthy as well as being knowledgeable.

How do you find an estate planning lawyer? Although it is not a subject that comes up very often among friends, you should ask people you know if they have used an estate planning lawyer that they liked. Because each state’s laws vary, you must use a lawyer who is a member of the bar in your own state.

If none of your friends has an estate planning lawyer that they are willing to recommend, check with your accountant and financial planner. These professionals typically know a good estate planning lawyer. If no one you know has the name of an estate planning lawyer to give you, call your county bar association and ask them for a referral.

Once you have one or more names, talk to each lawyer. You want to feel comfortable when revealing all of your family’s most sensitive information so it is crucial that you find it easy to speak with the attorney that you will hire. Ask questions about his/her experience as an estate planning lawyer. Make sure you understand anything that the lawyer explains to you. The lawyer you choose should be

 

someone who makes you feel confident that you are dealing with a professional who you can trust.

 

Your estate planning lawyer will be part of your legal and financial team for years to come. You want to pick someone with whom you can have a long-term relationship.

 

Distributing family heirlooms

When you write a will, you distribute broad categories of assets. But how do you parcel out the family heirlooms – the cherished jewelry, family photos, or special holiday dishes with family memories attached?

There are different ways to accomplish this goal. The first method is to sit everyone down with you and give away your heirlooms now. Perhaps each family member can pick one or more items until everything that you are willing to distribute now is divided among your children.

If your children are too young to want anything you own, you can create a list of items of personal property that you would want your children to inherit, together with the names of each person that you want to inherit each item. Your list may chronicle the story behind the possession so the recipient might understand the intent behind that particular gift. Try not to simply divide your belongings among your children by simply stating that “my belongings will be distributed among my children equally.” That is a recipe for warfare. The list should not be incorporated into the will but should be kept together with the will.

If your family cannot agree, and you have not created a writing for the court to follow, it will be up to a judge to decide, without any input from you. Oral promises will be totally ignored regarding specific items that you vowed to give to any particular family member. It’s up to you to do the planning and writing now.

Divorce and Estate Planning for Families

Those of you who were diligent in preparing your will and other estate documents when you were part of a nuclear family must now go through the process all over again. Divorce will have a major impact on your estate plan.

Your will probably gave everything you own to your spouse (now your ex-spouse). It’s probably true that you don’t want that scheme anymore. It’s more likely than not that you want your children to inherit everything you have when you die. Depending on the size of your assets, now that you do not have a marital deduction, you may require tax planning to ensure that your estate is not subject to federal or state estate taxes. The law considers you married until the divorce is final but you can change your will as soon as you know you want to change what is stated in your existing will.

Typically, the spouse is named as the executor of the estate, who is responsible for carrying out your wishes as expressed in the will. It is common for the spouse to also be named as the trustee of any trusts that you have established in the will. Is that still what you want?

You will also want to change other documents. If you have life insurance or an IRA, is your beneficiary of those assets the spouse that you are now divorcing? You must go and change the designation. Same with a health care proxy, durable power of attorney, and a living will, if they name your spouse as your representative. A durable power of attorney must be changed very quickly because your spouse can use it to access your bank accounts now.

Although it is likely that you want your soon-to-be ex-spouse to be the guardian of the children you had together, you may want someone else to be the trustee of any trusts you establish that have assets that will be going to your children. Otherwise, your soon-to-be ex-spouse is controlling your money that your children will inherit.

If you don’t have a will, until the divorce is final, your spouse is entitled to your estate by the laws of intestacy. Anything you own with your spouse as a joint tenant (the house, any bank or brokerage accounts) will go to him/her automatically if you die before the assets are separated into separate ownership.

You must consult with both your family law and estate planning lawyers to ensure that all of the consequences of your actions and rights under the law are explained to you.