Here are a couple more questions and answers about how wills work to protect you and your family in the event of your death. I know, it is a terrible topic, but one we must face while we are well and of healthy mind and body.
For more information about Go Au Pair and a cultural child care experience for your family, visit www.goaupair.com or contact LAR Joan Lowell in the Providence, RI and surrounding areas at firstname.lastname@example.org or 401.309.1925.
What’s the best way to leave property to my child?
There are many ways to leave property to young children. According to Steve Elias, editor of The Quick and Legal Will Book by Nolo, the following are some of the most common. In each case, you need to choose someone to oversee the transfer of your assets.
You can name a property guardian to handle your finances on behalf of your growing children. A property guardian is appointed by the court, according to the instructions in your will, and the court closely monitors his actions.
A property guardian is required to file a beginning and ending inventory of your estate as well as annual paperwork on how he’s managing the money. Any decisions he makes are subject to court approval. A property guardianship ends when each child turns 18. When that time comes, your child can spend the money on whatever he likes with no restrictions.
Although this is the least complicated way to pass property to your children, it can be very burdensome for the person you name as property guardian. However, if you’re not completely confident that the personal guardian you choose will make solid financial decisions, you may welcome the court’s oversight. Otherwise, you might prefer one of the options listed below.
Custodial account (Uniform Transfer to Minors Act)
If the person you plan to name as your children’s financial trustee or property manager has a history of making solid financial decisions, consider leaving money to your children in custodial accounts. The courts have no oversight over these accounts, which are governed by the Uniform Transfer to Minors Act (UTMA).
UTMA is the same across nearly all states, so the property manager (also known as a custodian in this case) will be recognized by most financial institutions immediately. That recognition makes the job smoother and easier. Any bank or stockbroker can set up a custodial account for you in minutes.
A trust fund is most useful if you have complex assets that you’d like to pass on to your children, such as a family business or significant amounts of money or property.
A trust fund gives you much more control over your money. It allows you to name the age at which distributions are made to your children, parcel out a little money at a time, and restrict how the funds are used. You can create the trust and appoint a trustee in your will. That person will then need to open a trust account at a bank or brokerage firm and file a tax return for the trust each year.
One downside: Because trust funds are individually tailored to meet each family’s particular circumstances, the financial trustee you name for your children has to provide more paperwork to banks or stockbrokers to document his decisions.
Do I need to worry about taxes eating up my child’s inheritance?
For 2011 and 2012, the lifetime gift tax exemption increased to $5 million – the same as the federal estate tax exemption – meaning you can leave up to $5 million to your children without worrying about estate taxes. Couples can together leave up to $10 million.
Keep in mind that life insurance policies, pension benefits, and real estate all count toward your total assets. (This is the different from the annual gift tax exclusion, which is $13,000.)
If you know or suspect that your estate will be worth more than the exemption amount, talk to an estate attorney about how to minimize the tax burden on your children.