This is a question that I'm often asked by young clients with young children. The basics of the plan are very similar to what a lot of individuals would expect. I always encourage people to have a financial power of attorney, a medical power of attorney, a living will, and Last Will and Testament.
Incapacity is something that often occurs, and older age is not always a factor. Even young individuals should have a financial power and medical power of attorney in place if they are over 18. I have gone at length in other blogs and in my workshops to explain the importance of financial powers of attorney, and I certainly cannot stress them enough. However, this article is specifically going to discuss whether a family with young children needs more than just a base Will.
Our office offers both base and enhanced Will plans for families. Our base wills are approximately 23 to 25 pages and typically will cover everything that a family would need from an understated age trust to a trust in case anyone has a loved one with special needs who upon inheriting assets would be disqualified from receiving benefits, which is called a special needs trust. We put both of those on standby, or “what if”, trusts in every document to ensure that families will be protected in the unlikely event that they were to die with beneficiaries under a specified age (at a minimum 18) and/or with any beneficiaries who are incapacitated or disabled.
These plans are able to cover most situations, but our enhanced Will plan provides something that our base plan cannot, which is the ability to protect inherited retirement accounts and other assets for children. Although our base plan provides an understated age trust in it, which allows a family to be able to set the age at which a child is able to receive a lump sum distribution, it cannot put a retirement account into that trust without triggering tax consequences.
In order for a retirement account to be inherited by a child and still be able to stretch out the tax benefits, it has to be put into a qualified trust called a see-through trust. Our enhanced plans are equipped with qualified see-through trusts which allow you to protect your retirement accounts without triggering any negative tax consequences. This is essential when dealing with young children because, if we use a base plan, then we must name the beneficiary outright in the retirement account.
Once we name a beneficiary outright, the beneficiary is able, at the age of 18, to force liquidation of the entire account, pay all the tax consequences, and do what they wish with the remainder of the retirement account. This is often not what parents want; rather, they want the money to be able to stretch out over the child's life expectancy from a tax perspective, but also keep it asset protected so that an 18-year-old cannot force distribution. Such trusts also protect the retirement account from the child’s creditors.
We at Bellomo and Associates have had great success at protecting young families with our enhanced plans so that we can stretch out tax benefits over the children's life expectancy and also keep the money protected from any unforeseen creditors. Please come to one of our workshops or contact our office to learn more about these benefits.
Jeffrey Bellomo, Esq.