If you are the parent of minor children, then having a will in place is essential. In addition to designating guardians for your children and naming a personal representative (a/k/a “executor”), your will also sets forth the disposition of your estate upon your death and should include the creation of testamentary trusts to ensure your children do not inherit your assets at age 18. A “testamentary trust” is a type of trust which arises upon your death, and which is created under the terms of your will.
Often, parents who create a will unintentionally override the provisions of their wills by naming their minor children as direct beneficiaries of life insurance policies and retirement accounts. If you designate your minor children as direct beneficiaries, these assets will be tied up in court upon your death and then will pass outright to your children at age 18.
Therefore, if you have a will and if you wish to direct your life insurance policies and your retirement accounts to the testamentary trusts you have established for your children, you must use specific language within your beneficiary designation forms to ensure these assets are directed accordingly.
To accomplish this objective, you could simply name your “estate” as your beneficiary. The drawback to this approach is that your life insurance policies and your retirement accounts will then be part of your probate estate along with your other probate assets and will be subject to court fees and other taxes and debts of your estate.
A better approach, based on Wisconsin law that became effective on July 1, 2014*, would be to use language similar to the following: “Aunt Kate, trustee, or her successor trustees, of the testamentary trust established for Little Jordan under my last will and testament”. Note that simply naming Aunt Kate as the beneficiary would not be a good approach because then your assets would become subject to the claims of Kate’s creditors and even possibly Kate’s spouse. Further, Kate could simply choose to use your assets for her own benefit!
Of course, every situation is different and you should consult with an estate planning attorney prior to changing your beneficiary designations. However, using the proper legal terminology could potentially save thousands of dollars in court filing fees alone.
Contact us today to set up your free initial consultation, or register for one of our upcoming estate planning workshops.
*See Wis. Stat. § 853.34(3).
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