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Living Trust and Estate Planning Hypothets Based on Actual Family Issues


Estate Planning with Minor Children:


Mick and Mona have 3 minor children ages 12, 10 and 8. Mick and Mona have been procrastinating about a Family Living Trust and Estate Plan.

     Mick has a 401k plan valued at $300,000 and a life insurance policy with a $500,000 death benefit designating Mona as his primary beneficiary and the minor children as the contingent beneficiary. Mona has an IRA valued at $250,000 and a life insurance with a death benefit of $300,000 in which Mick is designated as the primary beneficiary and the minor children as the contingent beneficiary. The couple also own a home valued at $700,000 with a remaining mortgage of $300,000.

Mick and Mona celebrate their 15 year marriage anniversary by arranging dinner in downtown San Diego traveling from North County. Tragically, after their dinner they are involved in a multi-car accident on their way home and are both killed.

Besides the horrific loss of life, Mick's brother and sister visit a California Estate Planning and Living Trust attorney to determine the legal ramifications. Unfortunately, the news isn't good.

Since minor children are designated as contingent beneficiaries, the retirement funds and life insurance proceeds are tendered to the Probate Court to be administered under a formal Guardianship. Taxes must be paid on the retirement funds as the distribution in total to the Court is a taxable act. As a result, there is no opportunity to stretch the distributions over the life expectancies of the minor children.

Because no Guardian was appointed by the deceased parents, the Court must hold proceedings to appoint a Guardian of the children and a Guardian of the childrens' funds from the life insurance, retirement funds, and sale of the home proceeds. Because neither member of the family is capable of taking care of all 3 children, the children are split between Mick and Mona's siblings for personal guardianship purposes. A private fiduciary is appointed to manage the funds for the children with attendant fiduciary fees.

The home must go through Probate and the process takes a year as the estate incurs statutory fees based on the gross value of the home or $700,000. This results in further diminishment of the estate value as Probate fees are assessed against the gross value, not the net equity of real property.

     The nail in the coffin comes when the family learns that each child is entitled to their share of the estate when he/she attains 18 years of age. Based on the potential for the estate growth, each child will receive approximately $500,000 when their guardianship is terminated at age 18.

     Had Mick and Mona executed an Estate Plan which included a Family Living Trust and Nomination of Guardianship, all of these legal proceeding costs, attorney and fiduciary fees and potential waste of an estate by children could have been avoided.

The Family Living Trust would have prevented Probate of the home and been the recipient of the retirement funds and life insurance proceeds. The Trustee, a trusted family member, could have administered the funds for the children and provided for them without Court intercession. Finally, the Living Trust could provide for the structured distributions to the children after their education was completed well into their twenties or thirties.

Procrastination won again. This scenario is continuously played out across the country with significant losses to the family estate annually. See an Estate Planning and Family Living Trust attorney now, and plan your estate. 

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