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Timothy J. O’Connor: Proper planning can ensure solid legacy

Published: Wednesday, March 12, 2014 5:30 a.m. CDT

Estate planning conversations are never easy, but they’re crucial for helping create a secure future for your family.

In particular, estate planning tools such as wills and trusts can help ensure your children will be taken care of if you – or you and your spouse – are no longer there for them.

Executing an estate plan lets parents determine who will raise their children and how their finances will be managed. It typically helps the parents gain comfort.

The plan should account for a number of factors, including the size of your estate, who will raise your children and how assets will be managed and distributed to your heirs. Pay particular attention to the following three items.

• The Distribution Structure: You might assume that naming guardians in a will is a comprehensive estate plan, but it’s really just the beginning. You also need to determine how assets will be managed for your children and when the assets will be distributed to them. Rather than simply bequeathing assets directly to your children, talk to your estate planning attorney about establishing a trust to distribute the property. In that way, you can control when your children receive those assets and even how the money is used.

Depending on your specific priorities, you can structure a trust to extend well into adulthood or dissolve when your child reaches the age of majority for your state.  Parents have to try to extrapolate what they think their child’s level of maturity would be at age 18, 21 or perhaps a more mature age.

Trusts are by no means uniform – they may be revocable or irrevocable, and have provisions that are unique to your family’s situation.

For example, a revocable living trust is a trust executed and funded while you are still alive. It benefits you while you are alive and then distributes your assets (outright and/or in trust) to your beneficiaries upon your death.

A testamentary trust is funded upon your death and stipulates when and how your assets will be transferred to your heirs.

• The Suitable Guardian: If you have minor children, it’s essential to arrange for their care. You can use a will to appoint guardians. While a relative or close family friend can fill that role, if possible, it’s important to designate someone who already has a close relationship with the child and, ideally, lives nearby to limit the disruption in the child’s life. When choosing a guardian, also consider such details as the guardian’s religious beliefs, financial means and connection with your extended family.

We suggest naming alternative guardians in case your chosen guardian dies or is otherwise unable to fulfill the duties laid out in your will. We also recommend revisiting this list every three to five years and updating it as necessary.

• The Rationale: Many children will find estate planning discussions uncomfortable, but some decisions, such as whom to name as guardian, can benefit from your children’s input. Other details will depend on your family situation and financial means. Many parents are reluctant to fully disclose their financial position to their children, which is fine. But parents should at least explain the rationale behind their estate planning decisions. Doing so may help avoid hurt feelings or misunderstandings in the future.

It can be easy to put off these important preparations, particularly when day-to-day financial decisions seem more pressing. But these matters have a direct bearing on your family’s future. It’s important that children know that their parents are looking out for them and planning for their long-term needs. And for parents, it’s about taking control and having a plan in place to help ensure their children are taken care of in a manner of their choosing.

• Timothy J. O’Connor is a certified financial planner and first vice-president/investment officer at Wells Fargo Advisors LLC in Woodstock. Reach him at timothy.oconnor@wellsfargoadvisors.com or 815-337-9470. 

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