SEELEY LEGAL SERVICES P.A., 3416 University Ave SE, Suite 200, Minneapolis, MN 55414 (612) 379-2440 seeleylegal@hotmail.com

COMMON LEGAL ISSUES FACING PARENTS WITH MINOR CHILDREN AND BUSINESS PERSONS by William Seeley, Attorney

I.   WILLS WITH GUARDIANSHIP-TRUST PROVISIONS FOR YOUR SURVIVING SPOUSE AND MINOR CHILDREN

• First let’s consider a typical family situation:  ASSUME THE FATHER (XIAO) IS AGE 45, MARRIED AND HAS TWO CHILDREN, A SON AGE 10 AND DAUGHTER AGE 6.  The father is a chemical engineer with a Masters Degree from the University of Minnesota.  He has worked for 3M Company for several years and now earns $80,000/year.  The company has a 401K plan that both you and your employer have contributed to with a current value of $300,000.  His wife Kathy is an accountant earning $50,000 /year with a small private accounting firm.  Her company has no 401K plan.  You and your wife have personal assets in your bank totaling $100,000.  Two years ago you bought a 4 bedroom house in Apple Valley for $450,000. The house now has a market value of $500,000; thus your equity in the house is $50,000.  Your two cars and various personal property are worth $50,000.  At this time your total assets (after subtracting the $400,000 mortgage balance on your house) is $500,000.     

ASSET SUMMARY OF XIAO AND KATHY’S FAMILY ASSETS:

• Xiao’s 401K Plan ………………….   $300,000
• Saving/checking account……………    100,000
• Cars/personal property …………….        50,000
• Home equity (joint tenancy ownership)    50,000
• TOTAL PERSONAL ASSETS ……   $500,000

While $500,000 seems like a lot of money, when you consider the cost of a college education and at least two years of graduate study, it will not be enough the pay for the future college education of your two children.  Current tuition, room, board and expenses at a top private college is now $40,000/year, and increasing at the rate of 10%/year.  By the time your son enters college in 2014, his yearly college expenses will be about $86,000/year, and his 4 year college bill will be an amazing $400,000! 

By the time Cindy starts college in 2018, projected tuition, room and board at a fine private college will be $125,535 (assuming annual 10% increases).  Cindy’s 4 year college bill will be a staggering $582,607!!   To save for both Jun and Cindy’s 4 year private college expenses will take $980,000 – almost double your current net worth.  To save this kind of money and save for your own retirement will require both you and your wife to work to age 70, invest wisely, and to purchase life insurance for at least the next 16 years until both Jun and Cindy have completed their college education. 

HERE ARE THE BASIC FACTS ABOUT PREPARING WILLS WITH GUARDIAN/TRUST AGREEMENTS:

1. Every adult person needs what is called a “Last Will and Testament.”  The will spells out the following instructions to be carried out after you die:

·  Your “Personal Representative or “PR”, or the person who administers paying your last expenses and distributing your assets – which is called your “Estate”.

·  Your “Beneficiaries” – or the people and organizations (such as a charity or non-profit group) who you want to receive your assets;

·  If you have children under the age of 18, the “Guardian” who will take care of them until they turn age 18.

·  The “Trustee” of any “Trusts” that you set up in your Will. 

·  Your Will should name both a first and second choice for your PR, Guardian and Trustee. 

·  One person could serve in the roles of  PR, Guardian and Trustee, but often the person you think will be the best caregiver for your minor children – such as your wife, or if both of you die in an accident, your grandmother back in China – may not be the best person to manage your $500,000 in estate assets and the $1 million insurance policy, which gives $500,000 to the Trust for your son Jun and another $500,000 for the Trust for your daughter Cindy. 

·  Unless you have a trusted friend or relative here in America or back in China, you may want to designate the Trust Department of a major bank as the Trustee, such as the U.S. Bank, which recently entered into a joint venture agreement with the Construction Bank of China.  If funds are to be sent to or from China and the U.S., in my opinion it is best to use an international bank, such as U.S. Bank, Citibank or Goldman Sacks.  Trust Departments typically charge 2% of the principal balance for every year that they manage and administer the Trust.  Your friend may not charge anything, but you may worry about his/her ability to manage your life savings over a long period of time.  Your attorney can assist you in thinking through these options and in preparing your will/trust agreement(s).       
 

2. WHAT HAPPENS TO YOUR ESTATE ASSETS IF YOU DO NOT HAVE A WILL? 

·  If one spouse dies before the other (usually the case), then under Minnesota law (using the above example of 2 minor children), the surviving spouse gets $150,000 plus 50% of the remaining estate assets, and the children get the remaining 50% in equal shares. 

·  However in the example above, Xiao took out a $1 million life insurance policy, naming his two children as beneficiaries.  Insurance policy amounts (both the face amount and any retained dividends) are a non-probate asset, which means that they are not distributed according to the statutory rules that apply to estate assets.    Because their home is owned in joint tenancy, it is a non-probate asset.  Whichever spouse dies first, the surviving spouse automatically gets 100% of the title to their home.  As stated above, their home equity is now $50,000.    Thus only $450,000 of Xiao’s and Ping’s estate would be distributed to his surviving wife and two children.  Also, if their house were in joint tenancy, then 100% of it would go directly to his wife, leaving only $450,000 to be distributed according to the statutory distribution scheme:

Now using Minnesota Statute 524.2-102 (SHARE OF THE SPOUSE), the $450,000 would be distributed as follows:

(1)   First $150,000 goes to Ping (leaving a balance of $300,000)

(2)    50% of $300,000, or another $150,000 goes to Ping;

(3)    Jun gets $75,000 (half of the remaining $150,000);

(4)    Cindy gets $75,000 (half of the remaining $150,000).

Note:  Because both children are minors (under age 18), under Minnesota law their $75,000 share would be deposited into a Minor Guardians Account, and could not be withdrawn by their parent or any other legal guardian on their behalf without a court order showing the need for early withdrawal. 

·        If both you and your spouse died in a common accident, then each of your two children would inherit 50% of your intestate probate estate, or $250,000 (using the above example).  But if you had no other adult relatives here in America, this could get very difficult for the Probate Court to decide who would be the Guardian and Trustee of the minor children’s estate.  For example, if the parents of Xiao’s family AND the parents of Ping’s family – all living in China – wanted to be named both Guardian and Trustee for the two children, then they would have to travel to the U.S. and appear before the Probate Court to explain why they would be the best choice for Guardian/Trustee.  If a real fight developed between the two families, they would probably have to hire an attorney to try to convince the Probate Court of which parent was best able to take care of the children, and manage their money.  THIS IS NOT A GOOD WAY TO PLAN FOR THE FUTURE CARE OF YOUR CHILDREN, IF DISASTER STRIKES YOU AND YOUR WIFE.  For a small sum of money now, you can have a Will/Trust prepared that will:

(1)   State who you want as your first and second choice for Guardian;

(2)    Who you want as your first and second choice for Trustee;

(3)     Who you want to get your estate assets.

3. Suppose you want to give $50,000 of your estate assets to your parents back in China. If you die without a Will, your parents WON’T GET ANYTHING if your spouse or children are still living, because under Minnesota law your surviving parents will only receive your estate assets if you have no living spouse or children.    
4. THE BEST POLICY IS TO HAVE A WILL THAT SAYS WHO YOU WANT TO GET WHAT PERCENTAGE OF YOUR ESTATE ASSETS. 
5. YOU CAN CHANGE YOUR WILL ANY TIME DURING YOUR LIFE.
6. YOU CAN REVOKE OR CHANGE A TRUST ANY TIME DURING YOUR LIFE, PROVIDING THAT YOU DO NOT SET UP AN IRREVOCABLE TRUST.
7. IN MOST SITUATIONS IT IS NOT WISE TO TRY SAVE A LITTLE MONEY TO “AVOID PROBATE COURT” BY SETTING UP IRREVOCABLE TRUSTS. 
8. We don’t have time today discuss all the types of Will provisions or different types of trusts that you can create, but if you want to set up an appointment with me, we can discuss your situation in more detail.  
9. Finally, don’t keep delaying preparing a Will for yourself.  None of us is immortal.  None of us knows when we will die.  Having a Will is not like getting a clock for a gift …. It is not a bad omen. 
10. Please do not make the mistake of using a sample will form that you find on the internet or even in a “Wills and Trusts for Dummies” type of book at a book store or library.  How many of you would read a book and then try to operate on yourself or build your family car?  Wills need to be very carefully prepared.  Wills need to be properly signed and witnessed.  If a will is not properly done, it will not be enforced in court.  Remember, once you die, you are not available to answer any questions about what you might have meant to say in your will.  Let a professional attorney prepare your Will and any Trust agreements that you need.
11. I will meet with you free for the first 30 minutes to help you plan what type of will or trust you want.  I will also be developing some more information for my web site:  www.seeleylegal.com that will attempt to answer common questions that people have in planning for their Will.  

FOR A COMPLETE COPY OF THIS PRESENTATION:

click the link Estate and Business Planning

(Copyright William S. Seeley 2006)

Copyright 2003-2006 Seeley Legal Services, P.A.

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