So you have a new baby on the way or perhaps already have several little ones underfoot. There are a multitude of things that you're likely worrying about as new or recent parents and estate planning is probably not one of them. However, discussing and making a few key decisions on the outset can help protect your family and children's interests in the years to come.
Nominating a guardian and conservator via a Will: A guardian and conservator are necessary for minor children because they cannot legally make decisions for themselves or own property in their individual name. In the event a minor child becomes orphaned and no guardian and conservator has been nominated by the deceased parents, then it is possible that relatives (e.g. the child's maternal and paternal grandparents or uncles and aunties) may engage in a lengthy legal battle to decide who will be legally responsible for the child and control the child's inheritance. This can be avoided by having the parents nominate a guardian and conservator for their minor children through a Will. Hawaii law also allows parents to make a nomination via a "signed writing", but it is safer to nominate a guardian and conservator through a properly drafted and signed Will. However, if the minor child is at least 14 years old, the minor may nominate her own guardian and conservator. The court will strongly consider the minor child's preference and determine whether the child's nomination is the best interests of the child.
Choosing who will be a guardian and conservator for a child is a difficult decisions and can sometimes hurt the feelings of those who weren't selected. However, this isn't a valid reason to not take action. Even if new parents are not completely certain about their choices for a guardian and conservator, it is better to have those selections initially memorialized in a Will. Providing some guidance on the parents' preferences is better than having none at all, which is something that could lead to a Hawaii court making inappropriate appointments. Of course, circumstances change and parents may reconsider their selections, but they can always revise their Wills at a later date to reflect those changes.
Creating a Trust: At the very minimum, new parents should have Wills drafted that nominate a guardian and conservator for their minor children as discussed above. However, creating and funding a Trust will allow parents to exert greater control over how and when property will be distributed to their children. For example, the trust terms may state that the trustee should partial distributions to the child when he reaches 25 years of age, 30 years of age and 35 years of age. This is in contrast to the legal requirement that a custodian under the Hawaii Uniform Transfers to Minors Act or a court-appointed conservator relinquish control of the property when the child reaches either 18 or 21 years of age. And since a child may lack the maturity or money management skills to handle property at 18 or 21, a trust can leave the property in the hands of a capable trustee to be managed and also extend the distribution timeline.
Trusts become an even more important tool if the minor children have special needs or disabilities. A Trust can be used to ensure that a child will continue to receive public assistance and medical benefits and also provide proper management of any property or assets that they may receive.
Life insurance: Life insurance is a powerful estate planning tool that should not be overlooked by new parents. At the most basic level, life insurance proceeds can be used as income replacement in the event a working parent passes away. Stay-at-home parents should also purchase life insurance to help cover childcare costs if they pass away. The insurance proceeds can help sustain a family as everyone recovers and plans for the future. However, in the best case scenario where there isn't a need for a death payout, life insurance can also be a great investment vehicle for a family since whole and universal life insurance policies can build cash value and earn interest over time. Parents of all ages and income levels should strongly consider purchasing life insurance policies that are within their individual budget and a good fit for their current family situations. Furthermore, naming a Trust as a beneficiary of a life insurance policy will allow the proceeds to be managed and distributed to your spouse and children according to your wishes.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
DISCLAIMER: All content and information is provided by The Law Office of Samuel K.L. Suen, LLLC and is for general informational and discussion purposes only and does not constitute legal advice. Transmission of this information is not intended to create, and receipt does not constitute, a formation of an attorney-client relationship. The information presented at this site is believed to be accurate when made, but may not be complete, is not updated, reviewed or revised on a regular basis. No representations or warranties whatsoever, express or implied, are given as to the accuracy, applicability or validity of the information contained herein. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. You should not act or rely on this information without consulting with a licensed attorney.
To ensure compliance with requirements imposed by the IRS, please note that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained herein.
Copyright © 2017 Law Office of Samuel K.L. Suen, A Limited Liability Law Company. All Rights Reserved.