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By Gerald N. Jacobowitz and Mark A. Krohn
What will happen to my children?
We are often approached by parents who are concerned and wish to provide protection for their children should an unforeseen event occur. As attorneys, we spend a great deal of time working with parents who recognize that there is a need to care for surviving minor children. Our purpose in writing this piece is to acquaint the reader with the importance of planning when the family includes minor or handicapped children so that their emotional, educational and health care needs are met.
Who will take care of my children when I die?
 If a parent dies without a Will, the children may remain in the custody of a surviving spouse or, if there is no surviving spouse, a relative or other suitable person. In New York where no suitable family member exists to care for the surviving children, the court may place the children for adoption or commit them into foster care. Thus, parents will want to appoint a guardian in their Will, and that appointment will generally be honored by the court. If a surviving spouse exists, the appointment is generally to him or her. Any appointment to another will generally require consent of a surviving parent. An appointed guardian becomes responsible for the child and his or her property.
What level of care can I provide for my children?
The most important aspect of the care for your children is the loving and nurturing atmosphere provided by the guardian of your choice. Parents should also consider the level of professional care to be provided if that child is mentally or physically handicapped . New laws have been enacted which encourage the use of trusts in providing for the care of disabled persons. These laws exempt from the Medicaid disqualification rules transfers to a disabled child or to a trust established solely for the benefit of a disabled child. Further, guardianship programs through private not-for-profit agencies may be available to provide services to disabled children. Most of these programs receive private philanthropic support, while some charge fees for their services and require an endowment in return for assurance of lifelong guardianship services.
What is the best way to ensure my child is financially secure?
Child Support/Obligations: Generally, the estate of a parent is not liable for the support of a child. However, where there exists an agreement to assume such obligations, such as in the case of a divorce settlement or by a Will provision, the deceased parent's estate will be liable for support. If no contract or agreement exists, the children may still be entitled to the New York Family Allowance provision. An order of support or a court ordered settlement made prior to that parent's death shall be enforceable as a claim against the deceased parent's estate in an amount to be determined by the Surrogate's Court not greater than is provided in the order or settlement, having given consideration to the age of the child, the ability of the surviving parent to support and educate the child, the amount of property left by the deceased parent, and the number, age and financial condition of those other persons legally entitled to support by the deceased parent during the child's lifetime.
Outright Gifts or Devises: One simple way to ensure a child has financial security would be to make outright gifts to the child via a custody account under the Uniform Gift to Minor's Act. However, caution must be used by the parent if a substantial gift is to be made because a child lacks legal capacity to sell or invest assets. Further, any gift over $10,000 ($20,000 if both spouses join in ) in any single year will trigger gift tax compliance. Some parents find giving substantial assets to their child may significantly impair a child's desire to achieve their fullest potential academically as well as the incentive to succeed in a career. If financial circumstances permit, carefully established separate accounts provide both income tax and estate planning opportunities.
Trusts: Another way for a parent to protect a child's financial security is to establish either a trust during his or her lifetime (an intervivos or so-called living trust) or a trust which will take effect upon death (a testamentary trust). A trust can add flexibility. Property can be held and managed in the trust during the lifetime of a child. The timing of distributions of income and principal can be decided while assets remain in the trust, and the property can be protected from creditors. Multiple separate trusts may be created to benefit several beneficiaries (i.e., children/grandchildren) and, provided they are properly drafted by an attorney, can result in tax savings. To be taxed separately, there must exist a substantial independent purpose other than to avoid taxes. Multiple trusts are usually living trusts, rather than testamentary trusts. The so-called "Sprinkling Trust" is similar to the multiple trust concept in that it is one trust designed to benefit several beneficiaries. The difference lies in that it is drafted as a single trust, and has the advantage of reducing the number of tax returns which must be filed. Qualified Terminable Interest Trusts ("QTIP") are trusts which pay income no less frequently than annually to a spouse for life. Thereafter, the trust principal usually goes to the children or grandchildren. If transfers of property are made to grandchildren, the so-called "Generation Skipping Tax" may apply. Careful drafting of a trust agreement is necessary to prevent such tax impacts.
What if we adopt children?
 In New York, and many other states, adopted children are entitled to share in their adoptive parents' estate the same as a natural child would be so entitled. The rights of an adoptive child to inherit from and through his or her natural parents terminates upon issuance of the order of adoption, unless the adoptive parent (i) is married to the child's natural parent, (ii) is the child's natural grandparent, or (iii) is a descendent from such grandparent.
How can children from a prior marriage be protected?
Children from a prior marriage can be protected by making direct gifts into a trust (either testamentary or living), by making outright gifts, and through use of life insurance and premarital agreements. An enforceable premarital agreement requires full disclosure of the parties assets. It is important for each spouse to have his or her own attorney when negotiating such agreements so that the agreement is "arms-length" and therefore valid. As discussed above, outright gifts can be problematical. If life insurance is to be used, the preferred method is to establish a separate life insurance trust to hold such insurance.
In conclusion, there are many ways that you can ensure that your children are protected and cared for should you be unable to do so directly. Through the use of estate planning, parents can possess peace of mind in the knowledge that their child will receive the resources he or she needs to live as securely and comfortably as the available assets will permit. Caution must be taken, however, in choosing the correct plan for the particular circumstances involved. An attorney specializing in estate planning matters who will cooperate with your independent financial and insurance advisors should be consulted to ensure that the protection you want for your children is properly provided.
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