Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

AN ESTATE PLANNING QUIZ WORTH REMEMBERING
(7/21/02)

Recently, a mother posed the following quiz to a group of attorneys. Although it relates to a situation that occurred in another state, I thought it worth sharing.

The Question

What is it called when your minor child inherits your husband's life insurance and the court usurps your parental rights, locks up all the money, makes your child pay approximately 6% a year, excluding taxes, so you can be forced into a career you don't want (without pay, though you wouldn't want to be paid), until the child is eighteen, but if you don't take it, a stranger will be appointed (for a lot more of your child's untouchable money) and the court makes you pay a yearly fine (bond) (from your child's untouchable money) (while doing so, the judge will commend you on being an excellent parent) to ensure you won't abuse your child by squandering the funds (you cannot touch anyway) and even though you have "never committed, been convicted of, or thought of committing a crime, but just might against the child you "endured twenty-one hours of hard labor to give birth to, sacrificed your life for, and loved more than anything in the world, and then, makes you go to court annually (spending more of your child's untouchable money) so that you can account to them [the court] for all the money you didn't spend, (and the judge can give you annual praise for being an excellent parent), then, force you to raise your child in sub-self-sufficiency standards, although, if money is needed for a dire emergency, you can spend more of your child's untouchable money, go to court and plead for about half the amount it costs to go to court, but the judge will probably deny it, unless you child has committed a crime because you could not afford extra curricular activities for him or her, thereby forcing the child to seek unstructured "extracurricular" activities, then the victims can sue your child, but, most likely, you will be stuck footing the bill because of your parental rights and responsibilities, so that when your child turns eighteen, he or she will receive $0.5 million, no strings attached, to spend however he or she desires! And oh yes, if your child dies before then, although you are suffering the ultimate loss, you then need to go back to court (spending more of your deceased child's untouchable money) to release you from your "career" duties, and also go through probate to have the funds released (your child's untouchable money) because your child, being a minor, did not have a will?

The Answer

Whew. I know the question was a long one, but I didn't write it--I'm just the transcriber. The answer? In this case in Arizona the answer is a "conservatorship." As the mother said, it may sound like a joke, but it is real, it is a nightmare, and (at least in her particular jurisdiction), it is the law.

The Point of All This

So why have I relayed this story to you? Obviously, the law varies from state to state and may even be interpreted differently from county to county, but the point this young mother was attempting to make was worth sharing with you. Don't leave your estate planning to chance. Plan ahead. If, as in this case, you want to leave a significant amount of money to your minor child, do it right. One way to accomplish this with a lot less grief for the surviving parent would be to establish a trust for the benefit of your child. You could do this as an irrevocable life insurance trust or as a revocable trust, whichever you prefer. Make the insurance policy or funds payable to the trust, specify how the funds are to be used, and designate the trustee you want to have authority over the trust, the management and the use of the money.

The courts are not designed to manage money for minor children. Courts can be extremely efficient in handling certain matters, but acting as a pseudo guardian of a minor child is not one of them. Not every state goes to such draconian length to protect a child's money, but even the most liberal court will prove less satisfactory than a properly drawn trust or other appropriate instrument.

The Result

The mother in this case is extremely frustrated. She doesn't know how to explain to her child that some eighty thousand dollars went to pay for bonds and court proceedings that didn't provide her any benefit. Somehow, telling her child that "this is the law" or that "it was for your own protection," just doesn't seem to cut it.

I won't go in to all the details, other than to say this particular case was a horror story from the very beginning. Her late husband was killed in a motorcycle accident, his Will could not be located, the attorneys who initially represented her failed to take the proper steps and then shuffled her from attorney to attorney, and the presiding judge may well have misread portions of the applicable law, compounding the situation. This does not minimize the need for proper estate planning. In this case, we are dealing with the mother's own child. Imagine what the situation might have been like if this was a second marriage situation with step-children.

Review Your Estate Plan Every Three Years Or Less

This case also points out the need for reevaluating your finances and estate plan on a regular basis. Recently, I spoke with a client who felt she had everything covered. She had set up separate investment accounts for each of her children and purchased insurance policies to provide educational funds for her grandchildren. This was all well and good at the time she set things up, but in the meantime her investments had dropped in value drastically because of the drought in the stock market. Each investment account was worth a mere fraction of the initial contribution and the values of each differed greatly from the others. Instead of each of her children receiving an equal amount of her estate at her death with her grandchildren receiving a lesser amount, the reversal in her fortunes had caused this to flip-flop. Now, the grandchildren who were named as beneficiaries of her insurance policies were going to receive substantially more money at her death than her children. The only good news is that she came in to review her estate plan, and was able to change things around and get them back the way she wanted them originally. Her children were agreeable, so she was able to transfer all the investment accounts into a trust and to rewrite the beneficiary designations for her insurance policies. Not everyone is this lucky.

All of which points out the truism that the law is here to help you, but only if you plan ahead and help yourself first. The law cannot do what you haven't done or change what you haven't done properly. All it can do is enforce the plans that you put in effect. Proper estate planning can be quite complicated and usually requires the assistance of a team of professionals. Your accountant, investment advisor and estate planning attorney are all key members of this team. Take advantage of their expertise to be sure that your family receives the full benefit of your estate and doesn't wind up subjected to a horror story like the one you have just read.

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