A Guardian Plus a Trust

If your child is still a minor, your primary need is to arrange for a guardian. If you do not name a guardian and you die while your child is a minor, a court may choose a guardian who is unacceptable to you. That possibility is easily prevented by specifying in your will who is to have custody of your child.

In addition, you can use your will to establish a trust that assures protection for your minor child's financial interests. With a trust, you are able to control the age and conditions for distributing the trust assets to your child, and before that, to ensure that the trustee will provide professional asset management. You may also use the trust to take care of any special needs you want to specify, such as your child's educational expenses.

Managing Life Insurance Proceeds

If you own life insurance to replace all or part of your income, you can have the insurance proceeds paid to the trustee, to be managed and administered with the rest of the trust assets. Using the trust to hold the insurance proceeds will let you designate how and when your child will receive the insurance money.

You can remove life insurance proceeds from your taxable estate by setting up an irrevocable life insurance trust during your lifetime and transferring full ownership of your policy to the trust. To qualify for the tax benefit, you will need to live at least three years after you make the transfer. The three year requirement does not apply if the trust buys the policy on your life. In this case, the trustee would use annual contributions you make to the trust to pay the insurance premiums.

Disability Planning

Your estate plan should also provide for the possibility of your permanent or temporary disability. You need a reliable party to make financial and health care decisions if you become unable to make them for yourself. Your attorney can discuss the options available in your state.

One strategy is to give a relative, friend, or other trusted person a durable power of attorney to conduct financial transactions on your behalf and, possibly, to make decisions concerning your health care. This can avoid court supervision if you become unable to manage your affairs for any reason. Or, you may want to consider setting up a living trust (or a standby trust) that allows a trustee to handle your financial affairs if you cannot.

Reducing Your Taxable Estate

Though the federal estate tax is scheduled to be repealed in 2010, the need for estate tax planning is essential, at least until then. Your options for reducing the size of your taxable estate do not include the marital deduction, but giving a series of gifts to your children remains an easy and practical strategy, especially if you transfer assets that are likely to appreciate in value. You can make tax-free annual gifts of up to $12,000 per recipient this year (adjustable for inflation in the future), either outright or in trust. Over time, annual giving can have a substantial effect on the size of your estate.

Planning for the Future

Planning for the future is an important step in ensuring your child's or children's personal and financial security. A Security Mutual Life representative, working in concert with your other professional advisors, can be instrumental in helping you plan for the best possible financial future for your beneficiaries. Please contact us if you have any questions or are in need of planning assistance. (Legal Notice)

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