W ith the kids scooting off to school this month, it's as good a time as any to finally tackle that homework you've been putting off, Mom. We're not talking about organizing the closets, either.
We're talking about all those legal and financial matters you've been worried about for so long.
Budgets, wills, insurance, trusts — they're daunting and tedious and easy to overlook until it's too late. But we all need to make sure our families' ducks are in a row when it comes to finances and legal issues.
To help, Lowcountry Parent is bringing you a special, four-part series called “Family Matters.” We hope this series – the first of its kind for our publication – will help you understand the legal and financial challenges faced by modern moms, including estate planning, divorce, children's safety and caring for aging parents.
To start the series this month, we talked with local experts about the most common situations women find themselves in when it comes to estate planning and financial matters at home… and how to move past them.
Problem No. 1: “I don't have a will. I've just never had time and it's too complicated.”
Before you had kids, having a will may not have seemed so important. If you passed away before having children, all your belongings would go to your spouse, right? According to Kathryn Cockrill, managing attorney at Kuhn and Kuhn Law Firm, the answer is yes — unless you've done a prenuptial agreement.
But things change when you have kids, she said.
“When you have children, it's even more important to have a will,” Cockrill said. “Because if you don't, half of your estate is going to your spouse, the other half is going to your kids.
“Now think about what that means for a house. If you have a home, half of it is going to your spouse, the other half is going to your children. What if your kids are 3 and 5 when you pass away? Now your minor children own part of your house. Most people don't want that — they want their spouse to own the home. So you have to make sure that things are set up properly to transfer to the intended beneficiaries.”
A will also allows you to assign a legal guardian for your children. You may have thought about who you would want to take care of your kids if something happened to you, but have you put it in writing?
“Whoever the other parent is automatically is going to be the caretaker,” Cockrill said. “But if you and your husband both pass away at the same time — you have to have a plan in place for that. You set that up in your will. You put, 'I want the guardian for my minor children to be my mother or my sister,' and you name a couple people just in case one passes away before you.”
As we all know, mothers of small children don't have a lot of time on their hands to sit down and tally up their belongings and assign them out. And let's be honest, it's weird to think about dying. So tackle estate planning like you do any other preventative household chore — put in the work now so it's not a nightmare later.
“We see it time and time again, because no ones likes to think about when they're passing away and how things should go,” Cockrill said. “But you really have to have these things in place. The best practice is to seek professional help. No one is expecting you to plan your estate on your own. I always say ask for help — and asking for help is not Googling it. It's calling a lawyer that's practicing in the area and they will assist you and give you good advice.”
Problem No. 2: “I have a will, that's all I need.”
Having a will is important, but it's actually only one document within a complete estate plan. The will comes into play after you die, but the other estate plan documents are what you use during your lifetime. According to Cockrill, a complete estate plan includes a last will and testament, a durable power of attorney, healthcare power of attorney and a living will. (For more on these documents, see Problem No. 3.)
Plenty of other options can make it even easier for your survivors to distribute your assets if you die. Consider a trust, for instance. A will, alone, simply takes possessions out of the deceased person's name and puts them into the name of the beneficiary, Cockrill said. This process plays out in probate court.
“A lot of people don't like the idea of court at all,” she said. “For people who want to avoid the court system entirely, you can put your assets into a trust. People don't realize that trusts are for everybody. It's just an estate-planning tool to remove you from court and for you to have some control over your assets after you have passed away.”
Cockrill said the most popular kind of trust is a revocable living trust. Basically, it sets everything up where nothing is left in your name individually, she said.
“If you don't have something in your name, then no one has to go to court to get it out of your name,” Cockrill said. “All your assets are now owned by this entity — it's a trust and it's your alter ego.”
Cockrill said trusts work especially well for parents for two reasons. First, parents of young children can use them to decide for themselves who they want managing their kids' money.
“If you have a life insurance policy and your spouse and you pass away in a car accident, let's say, and it's going down to your minor children, the court's not going to release the money,” Cockrill said. “What they're going to do is have a conservatorship set up in the court system where the court monitors how that money is spent. You're also paying a lot fees and court costs based on the value of that life insurance policy.
“A trust, however, transcends death, which means it still exists after you pass away. The trust will pay for everything your child needs, like their education, support, health care expenses. And then you're putting somebody in charge of the trust, a trustee who's going to be the one to manage their money.”
Secondly, parents of older children can use trusts to control how much money their children get after they turn 18.
“If you have a big insurance policy, you can't give an 18-year-old a quarter million dollars,” Cockrill said. “That's a big no-no — they're going to spend it immediately. So you want to put a little more restrictions on it. Maybe you don't give your kids the money until they're 25 or 30, and have your sister or your brother monitor those for your kids if you've passed away.”
Doing a little more advanced planning, like setting up a trust, can be expensive, Cockrill said. But the trust removes your family from the court system upon your passing, which is a huge advantage.
“Otherwise, you end up spending more money over in court than you would to just have your estate planned properly,” she said.
Problem No. 3: “My husband and I have briefly talked about what we'd like done if we were hospitalized, but we've never written it down.”
The other documents in an estate plan, the durable power of attorney, healthcare power of attorney and a living will, come into play if you or your spouse become incapacitated, Cockrill said. Many people think that if their spouse was hospitalized, and in a coma let's say, they could act on their spouse's behalf because they're married. That's not always so, Cockrill said.
Once a person becomes incapacitated — can no longer sign their own name — all the assets that are solely in their name become frozen, Cockrill said. Bank accounts can't be accessed, cars and houses can't be sold, unless they are also in someone else's name, she said.
“Spouses can't just access those because they're married,” she said. “Let's say the wife stays home and takes care of the children and the husband is the one working and making the money. He puts a lot of money into an account that doesn't have the wife's name on it. Husband gets in a car accident and then wife can't access the account.
“So all of a sudden, the money that was used to pay for the child's tuition and the child's care, the mortgage, everything, it's frozen.
“The account won't be frozen if you have a proper document that allows you the authority to act on that person's behalf. That's the property power of attorney or durable power of attorney.”
The healthcare power of attorney and living will address how you'd like to be cared for if you become incapacitated. The healthcare power of attorney names a person to make medical decision for you and gives specific instructions on your wishes concerning life-sustaining treatment, tube feeding and end of life care, Cockrill said. The living will addresses hydration and nutrition — also known as the pull-the-plug document, she said.
“Without these documents, your spouse will be able to make the decisions, it might just not be what you wanted,” she said. “Does your husband even know that you don't want to be kept alive, that you don't want to go through unnecessary treatment and tube feeding?
“You want things to be clear for your family. It's easier for them to say, 'Here's the document. This is what my wife would have wanted.'”
Problem No. 4: “I don't have life insurance—I don't know how much to get.”
After having children, consider getting life insurance for you and your spouse, said Diane Blackwelder, certified financial planner with Charleston Financial Advisors.
“Generally, life insurance is designed to replace the income that would be lost if a person were to pass away,” she said. “So the people who are dependant on the income won't suddenly become impoverished. So you want to calculate how much money you would need if something were to happen to the other spouse.”
Some recommend calculating the amount based on salary, but you should also think about the needs of the family, Blackwelder said. Maybe you choose to get enough insurance to pay off the mortgage so your partner doesn't have to, or enough for college savings for the kids.
Stay-at-home moms should also consider getting a life insurance policy, Blackwelder said. Though they don't bring in a paycheck, the work they do would have to be hired out if they were no longer around to care for the kids.
“There is value to the stay-at-home mom's job,” Blackwelder said. “Without her, the dad would be left to figure out who's going to take care of the kids while he's at work, who's going to cook the food and clean the house. We always recommend there be some insurance in place on the mom to cover those things.”
Problem No. 5: “We're living paycheck to paycheck, but we're getting by.”
The most common mistake Blackwelder sees families make is not being long term in their thinking, she said. Just because you're making it work now, doesn't mean you shouldn't think about and plan for the future — setting goals for what 30 years from now looks like.
“Setting up that savings plan is key,” she said. “It's much harder to catch up later than it is to start out in the beginning. There's certain rules of thumb—10 percent is a good number when you're young, it goes up as you get older because you don't have as much time for the money to grow.”
Having an emergency fund in place is also vital, Blackwelder said. The amount in the fund is subjective, but usually three to six months of expenses is recommended. The emergency fund acts as a safety net for disability—including unpaid maternity leave— and job loss, she said.
“The emergency fund is the biggest and best thing you can do for yourself, making sure you have that nest egg,” Blackwelder said. “It makes a huge difference when unexpected things happen—and they always do.”