Author Topic: Trusts for Life Insurance if Both Parents Die  (Read 1868 times)

Michael in ABQ

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Trusts for Life Insurance if Both Parents Die
« on: January 16, 2018, 10:07:04 AM »
My wife and I created wills a couple of years ago with the standard "If I die she gets everything, if she dies I get everything". We also named one of her brothers and his wife as the guardian of our five kids if we should both die. Between us we've got probably a million or so in life insurance and right now all the policies name each of us as the primary and all the kids equally as secondary beneficiaries.

So, if we both die in a car accident tomorrow, obviously my 9-year old will not be getting a check for $200,000. I've heard that its a good idea to setup a trust that would be created on your death to handle this money (plus any other assets like my 401k, etc.). While we trust my brother-in-law and his wife to care for our kids I also don't want to make them the beneficiaries directly.

What would happen with all of this if we did both die? Would the courts setup a trust or would they hand the money over to the guardians directly? Would it get deposited into joint accounts with their name and the guardians name on it?

A million dollars or so would certainly be able to generate enough income to help provide any additional support (food, clothing, possibly a larger house or vehicle if necessary) until they hit 18, plus be able to provide for college and still have plenty left over to distribute to them when they're older.

Has anyone setup something like this? If so, how much did it cost and how did you find an attorney to help draft it. Would it be wise to setup the trustee as someone other than the guardian, such as my father-in-law?

GizmoTX

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #1 on: January 16, 2018, 10:35:25 AM »
You add a paragraph to your wills that creates a testamentary trust for your children in the event that both of you die. You must name a trustee. This does not have to be the guardian & in most cases shouldn't be. Instead, name an estate bank to invest & manage the trust funds -- a good estate lawyer should be able to recommend some. Allow payments by the trustee to your guardian for the support, welfare, & education of your children plus some payment for their effort. You could leave your house for the guardian's use & have it sold when the children become of age (you specify) or have it sold outright & put into the trust.

I would not have the trust dissolve or distribute any remaining funds at age 18. Instead, the guardianship ends but I'd have the trustee continue to manage & disperse funds as needed to my children, to end at specified events and/or age. Allow the adult children the ability to change the trustee to another institution. We set up an irrevocable trust for our son which can distribute 50% of any residual upon graduation from a 4-year university or equivalent training, then 50% at age 30, & the remainder at age 35, or he can leave any or all of it in trust for his lifetime.

NeonPegasus

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #2 on: January 16, 2018, 11:49:35 AM »
Please, please consult with an attorney in your state and get some good wills with the advice that comes with it. I think we spent around $1500 and another $200 when we changed guardians due to health issues with the original guardian. The peace of mind was worth every penny.

Our wills are written so that everything goes into a testamentary trust (a trust formed at our demise at the direction of our will). We have guardian for our girls, an executor of the will and a trustee. These are all different people. This is partly to spread out the burden, partly to protect the guardian from our kids alleging misuse of funds and partly to ensure the guardian has a 2nd set of eyes on the money to ensure it's spent properly. So yes, designate a trustee that is separate from the guardian and make sure both people understand your vision. For example, my brother is the guardian. Should we die, he and my sister in law will get our 3 kids. I've made it clear that I expect them to use some of the money to move someplace larger than their current 1 bedroom condo and that I'm cool with them using it to get a larger RV so they can travel with our kids. Other people may not want the money spent on things like that.

My attorney said most people allow their kids to inherit 50% of any remaining funds at 25 and the rest at 30. Like GizmoTX, I pushed it to 30 and 35.

I'm a red panda

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #3 on: January 16, 2018, 11:52:09 AM »
Our will establishes a trust.  The executor (not sure if that is the right word) of the trust is not the guardian of our child.   So my sister can't decide "C. really needs a Lamborghini to commute to school in." as it is unlikely that would be an approved expense for her care.

Laura33

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #4 on: January 18, 2018, 07:42:12 PM »
You absolutely need a trust.  Kids cannot inherit by law.  If you donít set one up, the court will do it for you - meaning that you will pay lots of legal fees out of the insurance proceeds, you have zero control about who the trustee is, and the trustee will take money out of it every year - and then your kids get whatever is left as a lump sum at 18.  These are just bad ideas all around.

Just update your will to add a paragraph for the trust.  It will not cost much at all, and you will spend more time figuring out what you want it to say than you will actually getting it done - Iím honestly surprised that your lawyer didnít do it when you were setting up the guardianship, as those are both standard things for families with kids.

MrUpwardlyMobile

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #5 on: January 18, 2018, 10:06:37 PM »
My wife and I created wills a couple of years ago with the standard "If I die she gets everything, if she dies I get everything". We also named one of her brothers and his wife as the guardian of our five kids if we should both die. Between us we've got probably a million or so in life insurance and right now all the policies name each of us as the primary and all the kids equally as secondary beneficiaries.

So, if we both die in a car accident tomorrow, obviously my 9-year old will not be getting a check for $200,000. I've heard that its a good idea to setup a trust that would be created on your death to handle this money (plus any other assets like my 401k, etc.). While we trust my brother-in-law and his wife to care for our kids I also don't want to make them the beneficiaries directly.

What would happen with all of this if we did both die? Would the courts setup a trust or would they hand the money over to the guardians directly? Would it get deposited into joint accounts with their name and the guardians name on it?

A million dollars or so would certainly be able to generate enough income to help provide any additional support (food, clothing, possibly a larger house or vehicle if necessary) until they hit 18, plus be able to provide for college and still have plenty left over to distribute to them when they're older.

Has anyone setup something like this? If so, how much did it cost and how did you find an attorney to help draft it. Would it be wise to setup the trustee as someone other than the guardian, such as my father-in-law?
Consult an estate planning attorney in your area.  Trusts and estates laws vary by state and you really donít even want to know how bad things can get as a result of small seemingly inconsequential irregularities.
« Last Edit: January 19, 2018, 04:24:18 AM by MrUpwardlyMobile »

Michael in ABQ

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #6 on: January 18, 2018, 10:09:11 PM »
You absolutely need a trust.  Kids cannot inherit by law.  If you donít set one up, the court will do it for you - meaning that you will pay lots of legal fees out of the insurance proceeds, you have zero control about who the trustee is, and the trustee will take money out of it every year - and then your kids get whatever is left as a lump sum at 18.  These are just bad ideas all around.

Just update your will to add a paragraph for the trust.  It will not cost much at all, and you will spend more time figuring out what you want it to say than you will actually getting it done - Iím honestly surprised that your lawyer didnít do it when you were setting up the guardianship, as those are both standard things for families with kids.

We did our wills through the legal office with the National Guard as it was a free service. I think it might have been before our youngest was born so it would probably be a good idea to update it to include him by name as well.

Thanks for the information so far.

Just to clarify, is there any reason to change the secondary beneficiaries on our life insurance policies and retirement accounts or will setting up a trust in our will handle that?

Laura33

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #7 on: January 19, 2018, 07:35:56 AM »
You absolutely need a trust.  Kids cannot inherit by law.  If you donít set one up, the court will do it for you - meaning that you will pay lots of legal fees out of the insurance proceeds, you have zero control about who the trustee is, and the trustee will take money out of it every year - and then your kids get whatever is left as a lump sum at 18.  These are just bad ideas all around.

Just update your will to add a paragraph for the trust.  It will not cost much at all, and you will spend more time figuring out what you want it to say than you will actually getting it done - Iím honestly surprised that your lawyer didnít do it when you were setting up the guardianship, as those are both standard things for families with kids.

We did our wills through the legal office with the National Guard as it was a free service. I think it might have been before our youngest was born so it would probably be a good idea to update it to include him by name as well.

Thanks for the information so far.

Just to clarify, is there any reason to change the secondary beneficiaries on our life insurance policies and retirement accounts or will setting up a trust in our will handle that?

Yes.  Your life insurance will go to whomever is the designated beneficiary, NOT the heirs listed in your will.  So this again is why you need to go to your lawyer:  so they can tell you how to fill out those beneficiaries (my lawyer said that the primary is the spouse and the secondary is the trust, for ex).

March

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #8 on: March 06, 2018, 08:06:20 PM »
See a lawyer and get the language right. Please do not, under any circumstances, designate someone you think you trust as the beneficiary and assume they will take care of your kids with the money! What if they die? What if they get sued, divorced, go bankrupt, etc.?

When I was a military lawyer, we had to overcome a lot of folklore and resistance to do this the way we thought was right. It was almost impossible to convince the finance folks to accept the language that our office insisted on to protect kids. We wrote wills to create testamentary trusts in case the primary beneficiary died before the Soldier and insisted that the government life insurance form say the money would go into the trust if the primary beneficiary died first. We had to argue with the finance folks frequently and insist they not use some old-timey phrase like "by law" in the beneficiary box.

If you are still in the National Guard, you can call your closest JAG office and ask to stop by to have a lawyer to write you a new will for free. They may do it for discharged veterans, too. BUT, they may not know how do it the way you need it done. The JAG School doesn't teach it, but it is in the will-drafting software. The lawyers I worked with were older than average reservists with a lot of real-world experience.


Michael in ABQ

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #9 on: March 07, 2018, 10:12:14 AM »
See a lawyer and get the language right. Please do not, under any circumstances, designate someone you think you trust as the beneficiary and assume they will take care of your kids with the money! What if they die? What if they get sued, divorced, go bankrupt, etc.?

When I was a military lawyer, we had to overcome a lot of folklore and resistance to do this the way we thought was right. It was almost impossible to convince the finance folks to accept the language that our office insisted on to protect kids. We wrote wills to create testamentary trusts in case the primary beneficiary died before the Soldier and insisted that the government life insurance form say the money would go into the trust if the primary beneficiary died first. We had to argue with the finance folks frequently and insist they not use some old-timey phrase like "by law" in the beneficiary box.

If you are still in the National Guard, you can call your closest JAG office and ask to stop by to have a lawyer to write you a new will for free. They may do it for discharged veterans, too. BUT, they may not know how do it the way you need it done. The JAG School doesn't teach it, but it is in the will-drafting software. The lawyers I worked with were older than average reservists with a lot of real-world experience.

Thanks. The last time we had it done was through the National Guard JAG office but I think it was a paralegal that drafted it and the O-4 or O-5 JAG lawyer just came in to go over it real quick before my wife and I signed.

CidreCreek

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #10 on: March 26, 2018, 05:54:18 PM »
Your will should establish a backup trustee. If you have a good lawyer, they will include language in your will to make everything as easy as possible so that it doesn't have to be held up in probate court. Guardianship is established separately from backup trustee in the will although they can be the same thing. Your will should also establish when your children receive monies in your estate. The usual age is 25 but you can adjust that as you see fit. Agree with everyone else --definitely get a lawyer to get the language right.

TVRodriguez

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Re: Trusts for Life Insurance if Both Parents Die
« Reply #11 on: March 27, 2018, 09:48:37 AM »
I agree with all who responded.  Well spotted, OP, and good for you for addressing this issue.