Where There’s a Will, There’s a Way
Ensuring Your Children are Cared for After Your Death
Story by Amy Newman
With a 3 year old and 1 year old at home, Anchorage mother Erin DeVore knows that she and her husband need a will. Yet it’s something they continue to put off. Like many parents, they don’t want to think about dying while their kids are still young. “It’s (a subject) we avoid,” she says.
The DeVores are not alone. A 2011 survey commissioned by Rocket Lawyer found that 57 percent of adults do not have a will. A poll posed to a Facebook group for Anchorage parents bore that statistic out – 58 percent of those who responded did not have a will. The reasons were varied:
“I don’t even know where to begin, and the thought of having to go in and get a lawyer doesn’t really appeal to me.”
“The amount of time it would take.”
“It is just so hard to decide on a guardian.”
But even though it’s an unlikely scenario that parents will die while their children are young, a will remains a necessity.
“Once you have kids, you need to take care of business,” says Brita Speck, owner of Law Office of Brita Speck in Sitka. “You need to make sure they’re taken care of.”
And that means meeting with a lawyer to get in writing who should care for your children, and how they should be taken care of, if both parents die.
Choosing Who Will Raise The Children
Choosing a guardian is usually the biggest obstacle parents face when drafting a will.
“It’s the number one reason parents of young kids give me for not having a will,” says Alisha Hilde, owner of Alaska Wills and Trusts in Anchorage. To get the conversation started, Hilde advises parents to think about the type of life they envision for their child.
“Pick two or three values that are really important to you,” she says. “You may not be able to find someone who matches all of those, but you may be able to find someone who meets most of them.”
A will is especially important if parents want a non-family member to serve as guardian. In the absence of a will the court appoints the guardian, and will look to family members to fill that position if nobody steps forward. If more than one person steps forward, the appointment proceedings could resemble a custody battle, and could become just as contentious. This can cause further pain to the child who has already lost his parents.
“To not have those things in place, there’s so much uncertainty, and so much stress as to where the child will go,” Speck says. “That’s hard for a child to be in limbo.”
One fear many parents have is that if they die without a will, the Office of Children’s Services (OCS) will take custody of their children until a guardian can be appointed. Not true, Hilde says.
“I’ve checked with OCS,” she says. “If there’s a next of kin, that person can take the child right away. OCS does not want your child.”
Deciding How Your Children Will Receive Their Inheritance
An individual is not legally competent until age 18, which means that a child cannot receive an inheritance outright; instead, it must be managed by a third party.
One option is to have the property held pursuant to Alaska’s Uniform Transfers to Minors Act (UTMA). A custodian is named to manage and invest the property, and may use as much or as little as he deems necessary for the child’s benefit. Absent a will, the court will appoint the custodian. Property held in an UTMA can be distributed outright to the child no earlier than age 18, and no later than age 25.
Another option is to create a trust and appoint a trustee to manage the property. A trust is an attractive option for parents who dislike the idea of their child receiving an inheritance at 18 or 25, or for those who want more control over how the money can be used.
The most common is a health, education, maintenance and support trust, which allows the trustee to make distributions for any expense that falls within those broad categories, such as college tuition or medical expenses, says Speck. Parents can expand or limit what types of distributions are allowed.
Parents can also tailor the trust to provide for lump-sum distributions when the child reaches a specific age.
“When the child is, let’s say, 25, they get one-third, at 30 another one-third, and at 35 they get what’s left,” says Susan Evans, attorney at Hompesch & Evans in Fairbanks. “The idea is that when they get those distributions, they might blow the first third, and maybe the second, but they’ll save the (last) third.”
The trustee can still make distributions before the child reaches that age, but the fractional amounts must be distributed at the specified ages, she adds.
Just as important as deciding how the child should receive the inheritance is deciding who will manage it.
“You need someone who’s trustworthy, financially astute or capable of hiring an astute financial manager,” Evans says. She suggests writing a letter to the trustees to give them more specific guidance on what payments you would have considered appropriate if you were alive, without restricting their discretion to make distributions based on the child’s best interests.
“Tell them, ‘This is my intention, not my direction.’ You don’t want to put it in stone,” Evans says. “None of us have our crystal balls; we don’t know what the future is going to entail.”
Planning For The Special Needs Child
Many children with special needs receive some form of needs-based public assistance, usually in the form of Medicaid or Social Security. Eligibility for these programs has strict financial limits, and a child enrolled in these programs should never receive an outright distribution at any age.
“If those funds were available to them, they’d lose those benefits,” Speck says. “That can be really scary, because these benefits are covering the expense of medication, the expense of therapies.”
Parents must create a specific type of trust, called a special or supplemental needs trust, to ensure the child’s continued eligibility to receive these benefits, Evans says.
“It gives direction to the trustee to use the funds in the trust to supplement governmental benefits, but not supplant them,” Evans says. “If you have a health, education and support trust, it will disqualify the child for governmental benefits until it is spent down.”
This is important because there are limits to what Medicaid and Social Security will pay for, Evans says. Having the money in a supplemental needs trust ensures that the inheritance is available to pay for those things these programs don’t cover, such as basic cost of living needs.
Whatever your situation and whatever your goals, sitting down to discuss how the children will be cared for if both parents die is a conversation all parents must have.
“It’s not an easy process,” Speck says. “But I think having it done and put away really can give you peace of mind.”