Estate Planning for the Established Family

In our last installment, we explored estate planning for maturing families. This article moves to the next stage, planning for the established family, where children are grown and grandchildren have arrived. At this stage, the estate planning focus shifts more toward the future, as the couple’s lifestyle is established, debt is manageable or eliminated, and assets are more stable and on a trajectory of growth.

For the couple in this stage, generally at the end of middle age or the early senior years, lifestyle tends to be predictable and consistent, often supported by long-held employment or an operating business. Assets are growing, while the expenses of raising the children, mortgages, and other major costs of living have diminished or been eliminated. A couple’s largest assets typically remain their home, retirement accounts, and investment accounts. Estate planning at this stage centers on ensuring the couple’s own financial needs in retirement and establishing a plan for the long-term benefit of the children and grandchildren.

Focusing too much on providing for children or grandchildren could leave a surviving spouse in a precarious position, particularly if long-term medical care becomes necessary. Ensuring that both spouses, and ultimately a surviving spouse, have access to assets to protect their retirement lifestyle, including independent living and well-earned leisure and travel should be the primary concern. Whatever can be left for the children and possible future generations is of secondary concern. There is benefit to the entire family when a couple is able to maintain independence, even if doing so reduces overall wealth.

That said, planning for the established couple does not mean focusing their plan solely on themselves. A couple should still review their financial status and look for opportunities to support the children and grandchildren. Just as there is great benefit to living independently, there is also benefit to helping the next generation and seeing that generosity appreciated and enjoyed. Any gifts paid directly to a school or health care provider for a child or grandchild do not count toward the federal gift tax limits. Meaning, a grandparent can pay a grandchild’s tuition directly to the school and still make an annual exclusion gift to the same grandchild (currently $19,000).

As retirement approaches, coordinating a financial plan with an estate plan becomes the most important consideration. One without the other is only half the picture. A typical estate plan for the couple in an established family often includes:

• Wills, often containing mirror provisions, may designate specific bequests to individuals or charities and direct the remaining assets to the Trust for the benefit of the surviving spouse, followed by the children. While each spouse typically serves as executor, it is important to identify at least one alternate in case the surviving spouse is not able to serve or has predeceased. Children are typically named as alternates, but selection should be based not only on age, but also on ability and availability.
• Trusts allow the surviving spouse unrestricted access to trust assets for any purpose. The surviving spouse could add or withdraw funds and direct how assets should be distributed upon the second death. The ability to direct where assets pass at the second death is important because the needs of the children or grandchildren may have changed substantially since the death of the first spouse. When both spouses have died, the Trust may provide for an outright distribution to children or may continue for a child’s lifetime to protect assets from creditors or divorce, while supporting the child’s health, education, support and maintenance. If a child has predeceased, or if the couple has opted to keep the property in the Trust for a child’s lifetime, provisions must be made for what happens after that child’s death. Maintaining the Trust for grandchildren (or future generations) still means establishing an end point. The longer the Trust is intended to last makes the selection of an appropriate trustee essential. Most trusts provide mechanisms for the beneficiaries to identify successor trustees, but many people often choose to have a financial institution serve as successor trustee.
• Durable Financial Powers of Attorney allow one spouse to handle financial, banking, and tax matters if the other becomes ill, incapacitated, or unavailable. Again, naming appropriate alternates remains important as the responsibility to oversee non-Trust assets cannot be minimized. As with an executor or trustee, while the default may be to name the children in order of age, selection should be based on ability and availability, not just age.
• Health Care Directives, including Living Wills, Health Care Powers of Attorney, and HIPAA Authorizations become more important as end-of-life decisions become more likely. Consideration should be given to selecting those more capable of making those decisions, and not reluctant to enact a parent’s instructions at an extremely difficult time.

Having an established estate plan helps protect against the unexpected death or incapacity of one or both spouses, but as time goes by, revisiting both the estate plan and financial plan is essential. Ensuring the needs and resources of the spouses is of primary concern while planning for how to support children or grandchildren requires thoughtful management of the couple’s resources to meet current and future needs and goals.

If you would like to schedule a consultation to discuss your estate planning needs, our Estate Planning team is here to help.