Your life just changed — should your plans for your family change, too?
Whether you are remarrying, your child is graduating from college or some other big event arises, use these tips from Bank of America to take a second — or first — look at your estate plan.
Setting up an estate plan, including a will, power of attorney and sometimes a trust, may be a chore you cross off your to-do list and forget about. But that approach misses an important dynamic of any family: Things always change. You might make a life decision, like remarriage, that has reverberations for other family members. Your children graduate from college, take jobs, get married, start families and perhaps face financial challenges. Any of those events can be a cue for you to think about changing the terms of your trust — or think about getting one.
“There is a myth out there that trusts are ‘set it and forget it.’ The fact is, they should be crafted in a way that reflects your goals, even as they evolve over time,” says Lynn Bebeau, director, Wealth Strategies at Bank of America. The most flexible kind of trust is a revocable, or living trust, which lets the grantor retain control and make changes during their lifetime. It can even be dissolved.
Often people do not recognize the opportunity or need for a trust until a critical moment. But if you are checking in with your advisor frequently, you can adjust your trusts as needed and avoid exposure to potential risks. “Anything that potentially triggers a transfer of wealth should also trigger a conversation with your advisor,” says Iran Harvell, wealth strategist at Bank of America. Here are situations that may lead you to revisit your plans.
You or your ex remarry. A second marriage can create financial complications. Updating your trust plan can bring clarity and let you avert family discussions around touchy money matters. With a revocable trust, you could add and re-distribute assets between stepchildren, or add or remove an ex-spouse.
A longtime client of the bank used this option recently, following a health scare that made her wonder what might happen to the wealth she brought to her second marriage. With a revocable trust already in place, she merely altered its terms so that, if she were to pass away before her second husband, it would take care of him for life while continuing to support the children from her first marriage. Even if the widower’s relationship with his stepchildren soured, he would remain comfortable but could not restrict the children’s access to their portion of the funds.
A child comes of age. Parents may love all their children equally, but that does not mean siblings should receive the same financial treatment. Bebeau recalls one executive whose 21-year-old son was pursuing a career as an artist, while his sister was in law school. This led the executive to think hard about how her children’s needs might differ over time, and how she wanted to support them.
She brought this up with Bebeau. “As we looked at a trust plan, we considered whether each child would benefit from different boundaries that reflected their career choices,” says Bebeau. In the end, the executive chose identical trust provisions for her children, recognizing that the boundaries set would benefit each child differently. By authorizing the trustee to make distributions for healthcare, education, maintenance and support, the trustee could evaluate each child’s different situation to make distribution decisions.
An heir is not quite ready. As your children grow up, they may find themselves in unexpected circumstances that complicate their finances. Say your daughter becomes a successful surgeon — which carries the risk of malpractice lawsuits that could jeopardize her assets. Or your son goes through a bitter divorce and faces an aggressive lawsuit.
One key advantage of a revocable trust is that you can revisit the original document and remove or add assets from your estate while maintaining control over how they are disbursed. It would shield assets from any lawsuits your daughter might meet and would protect the family’s wealth from an ex-daughter-in-law, while still granting the son and his children the benefit of the assets.
You have a family vacation home. Family gatherings in the mountains or at the shore can create lifelong bonds, but a vacation home can be costly to maintain and hard to divide among siblings. It can also create a tax hassle for heirs. Many of these issues can be avoided if families place their vacation home into a revocable trust, or make the initial purchase through one. That allows the parents to name their children as the ultimate beneficiaries without necessitating a lengthy probate process when they pass away.
At death, most revocable trusts become irrevocable trusts, which means they cannot be changed without the permission of all beneficiaries. A trustee and successor trustee can be named to manage the asset so that the home is maintained indefinitely — unless the money runs out or the heirs decide to sell. “The goal is to ensure that the house remains in the family for generations without having it become a potentially taxable asset in the estate,” explains Harvell.
For more information, contact Merrill Financial Advisor Don P. Martone of the Hughes Landing office at (281) 882-4818 or firstname.lastname@example.org.
Opinions are as of 1/13/2023 and are subject to change.
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