Estate planning for children requires thought SanTan Sun News

Estate planning for children requires thought

Estate planning for children requires thought
Business
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By James Phelps, Guest Writer

There are folks who have tried to eliminate the expense of implementing an estate plan by adding their children as signers on their bank and investment accounts, and even on the deeds to their homes. 

They make this mistake because they want their children to have immediate access to the account in the event something happens to them.

There are multiple problems with this solution: their creditors become yours; if they default on loans or taxes, your bank account can be seized; if they are sued, your account can be taken.

Although you may trust your child to share the remaining cash in these accounts equally with your other children after you die, your child has no legal obligation to do so.

 If the child you added to your accounts does not carry out your wishes, it could result in bad feelings in the family or, worse, a lawsuit.

While a client may not care what their children do with their money, they do care what their children become as a result of how they use the parent’s money. With proper value-transfer planning, this cycle can be avoided.

Giving meaning to your money beyond its purchasing power can have a tremendous positive impact on the type of people your children and heirs become. Giving meaning to wealth can prevent your wealth from being squandered.

If you do have preferences about children receiving certain amounts at certain ages, or if you want to reward certain behavior (like graduating from college or starting a business), it is better to do so in what is called a “Statement of Wishes.” 

This is a non-binding instruction from you to the trustee that will give the trustee guidance, but it is suggestive only and not binding on the trustee.

We have found it very helpful to hold a family meeting where you share a visual diagram depicting the estate plan prepared as a handout in order to make the plan more understandable. 

Questions and concerns are addressed openly and honestly during the meeting. It allows parents to explain the reasons for their estate-planning decisions and to put to rest any objections or concerns raised by the family.

Except in the most unusual circumstances, we encourage our clients to talk to their children about money. 

Studies show the best approach is to turn all the cards face up and let your children see how finances are successfully handled in the home.

 Meaning and values are best transferred throughout childhood, and the best way to teach is by example. Lessons learned early are lessons learned for a lifetime. 

When your kids are older, giving your children some of their inheritance while you are alive to see how they manage it may also be a good idea. Make no mistake: your estate plan is an essential security for your entire family. 

— James Phelps is managing partner of Phelps Law. He can be reached at phelpslaw.com or 480-372-9535.

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