As couples mature and children grow less dependent, we start considering life without “the little birdies.” Often, at this stage, if a couple hasn’t created an estate plan or revisited it in years, they decide to continue postponing the initial visit or revisit. Especially if the children are in their late teens, near or in college, a couple or parent postpones this work thinking that planning with the children in mind is nearly over. However, articles and commercials abound about the return of the little birdies…indefinitely. What’s worse is that upon the return, the little birdies sometimes don’t contribute financially to the household maintenance but instead use resources without replenishing them. So I caution people who say to themselves, “Ahhh, she’s in grad school now; we can relax,” to think again, long and hard. Once the children are relatively independent, i.e., still maturing financially and emotionally, parents should revisit the following questions:
- What are our goals in 10 years and are we on track?
- What do we want to protect?
- How should we protect it?
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Revisiting the Goals
If you own a home, you probably want to protect it. Yes, you may consider downsizing or changing geographic locales, but you’re still likely to want to protect ownership of your primary residence. Also, if your child has been accepted or is in the college application process, you’ll probably to want to protect the college education. You’ve saved and worked smartly with a CFP and CPA, and you don’t want to blow your child’s opportunity. Still, what if your child is brilliant or extremely talented and ears a full scholarship? Finally, how’s that retirement planning going? If you, your spouse, partner, or child experience a long-term illness, would you be able to manage financially without sacrificing retirement income?
The Fiction v. Fact about Protecting Those Goals
Place your home in trust.
Fiction: It protects homes from creditors.
Fact: Not necessarily. If a homeowner is Trustee of the house placed in trust, that homeowner’s creditors can place a lien on that trust. Even land trusts are permeable.
Place education savings in a 529 account.
Fiction: 529s are the only way to pay for your child’s education other than traditional savings.
Fact: 529s are beneficial under certain circumstances. Other considerations are balancing the funding of this college savings account with saving for retirement. Again, what is your primary financial goal?
Place retirement proceeds in a trust.
Fiction: Naming a trust as beneficiary for retirement proceeds will reduce or eliminate tax burdens.
Fact: Naming a trust as beneficiary for retirement proceeds may actually create undesired tax burdens depending on the retirement account requirements and the trust involved. It may also create problems when required distributions must be made.
So putting off a visit or a revisit to an estate plan because the birdies have flown or are about to fly the coop, could be detrimental to future life stages for you and the birdies. Furthermore, if they come back, well, consider learning about landlord and tenant rights. That’s what my grandmother did!
