Recently, I spent a few days on a boat in Lake Huron with a friend of mine who has no children. It got me thinking. I have never written a column specifically directed at the issues that may be encountered when there are no kids involved.
You may be married, or not. However, by choice or by happenstance, you have no children. Who do you want making financial and healthcare decisions for you when you are unable? To whom do you want to leave your stuff after you are gone? Have you done any estate planning?
Estate planning is more than just death planning. Estate planning is keeping control of your property and other assets while you are alive and well, providing for you and your loved ones in the event you became mentally disabled, and after you are gone, giving what you have, to whom you want, when you want, the way you want.
If you are married, you may think that your spouse has some sort of legal authority to make decisions for you if you are unable. But such is not the case. Marriage grants your spouse no such authority.
Neither your spouse, nor anyone else, can make such decisions for you, unless he or she has been granted such authority by you, or by the probate court. You can grant such authority to your spouse and/or others through financial and healthcare powers of attorney. These documents would allow your designated agent to make financial, medical and mental healthcare decisions for you if you are unable.
When you have no financial power of attorney, someone would have to be appointed as your conservator by the probate court, before he or she could make your financial decisions when you are unable. Similarly, with no healthcare power of attorney, someone would have to be appointed your guardian by the probate court, before he or she could make medical or mental healthcare decisions for you.
If you are married, oftentimes you name your spouse as your financial, medical and mental healthcare agent. But who do you name as backups to your spouse or if you are not married? If your parents are still alive and well, you may want to name them. After that, you may want to name siblings, if you have any and they are alive and well. After siblings, you may want to follow the family tree, nieces and nephews, great-nieces and great-nephews and so on.
If you have run out of relatives, you may want name a trusted friend or close neighbor. The person you name does not necessarily have to live near you. He or she could live in another city or another state and still make decisions for you.
After you have run through relatives and friends, you may want to think about trusted family advisors, such as your CPA, tax advisor or financial advisor. Your bank may offer trust services and would act as your financial agent in the event of your mental disability. Your financial advisor or life insurance agent may be associated with an affiliated bank or trust company that could be named as your financial agent. These captive banks and trust companies typically handle financial matters for their affiliated company’s brokerage customers and policyholders.
And what about after you are gone? If you have done no planning, your estate will go through the lengthy and expensive probate court process. Since you have no kids, all of your property and other assets would first go to your surviving spouse. If you are not currently married, your parents would be next in line.
In the event that your parents are no longer alive, all your stuff would be divided among your living siblings and the descendants of any of your deceased siblings. If none, then to grandparents and then to descendants of your grandparents. If there are no heirs to be found, then everything would go to the State of Michigan, converted to cash to be held until a claim is made by an heir. If no claim is made, after a certain period of time, the cash goes to the State’s General Fund.
And if you have any heirs who are minors, their share of your estate would be held in a court appointed conservatorship until they reach age 18, when they become adults and gain all the wisdom and insight of adulthood, and the court distributes all their conservatorship assets to them. They then go to university, the University of Corvette.
What is important to you? You may not want your stuff to go to your brother whom you haven’t seen in 15 years. Do you want to benefit that lazy nephew or the druggy niece? Or you may have a favorite friend or relative who has been particularly attentive towards you, whom you want to remember.
If you have decided upon individual beneficiaries, then how do you want them to receive their inheritance from you? If you left it to them outright, it would be subject to claims by their creditors and/or divorcing spouses. If however, you left the inheritances to them in separate lifetime trusts, the inheritances would have some beneficiary protections.
These beneficiary lifetime trusts have three primary protections. Firstly, the separate trust assets are generally protected from claims against the beneficiaries from lawsuits, bankruptcies and other creditors. Secondly, so long as the beneficiaries keep these assets in the separate lifetime trusts and never co-mingle trust assets with marital assets, the trust assets will be protected from their divorcing spouses. With the use of lifetime trusts, there is creditor and divorce, or predator, protections. In addition, with the proper language in the trusts, you have the additional protection of giving your beneficiaries the opportunity to continue these protections for succeeding generations, basically forever.
Is higher education important to you. If so you could do what some of my clients with no children have done, set up educational trusts for nieces and nephews to be used for post-high school education. You could set up the trust to reimburse the beneficiaries for their educational expenses after they pass the courses with, say, a grade “C” or better.
And if there are no specific individuals whom you want to benefit, then what are your passions? What charities have you been supporting during your lifetime. Unless you remember them in your will or trust, they will not have the benefit of your support after you are gone. Do you want to continue to support your church? How about protecting animals or the environment? Do you want to help support substance abuse programs or cancer research? I have had clients over the years who have done all of these, and many more.
With proper planning, you can not only protect yourself during your lifetime, you can leave a legacy that will have a lasting impact long after you are gone.
By: Matthew M. Wallace, CPA, JD
Published edited July 7, 2013 in The Times Herald newspaper, Port Huron, Michigan as: Estate Planning with no children