For couples with kids, estate planning is essential

Andrea dragged her husband, Brad, to a lawyer to get a will done. The two of them were in their early 30s. They had little in terms of assets and were busy with their first baby. The legal fee for a proper estate plan was going to set the two of them back $1,000 or so. It seemed like a waste. Brad had his eye on a new guitar.

One of the first questions the lawyer asked was who should take over parenting their child if both of them died in a car crash. Brad thought his parents would be best for the job. Andrea thought it should be her sister. It took a discussion later at home to work that through. Brad's parents were getting on in years, and Andrea's sister already had two young children of her own. They decided on the sister, who agreed to do it when they phoned her to ask. A clause was written into their wills to state that preference.

What would happen if that were left as a loose end and the two died while the child was at daycare? It was chilling to think about. The two families would have to sit at a kitchen table until someone volunteered.

Draft wills were prepared. All of the wealth was to go to the survivor. If Brad died first, everything went to Andrea, and vice versa. Then, if both died, whatever was left was to be held in trust for their child. The money would be held until the child was 25. Age 18 seemed crazy. It could be used along the way for education, and Brad's parents would be the trustees. That meant they would hold the money until the child was 25 and dole it out along the way for things like education.

The lawyer asked if there would be enough money. That was an ugly thought. The house was mortgaged. They each had some group insurance at work that would pay out a year of salary if one of them died. The survivor would be a single parent with one income. It seemed pretty clear they would lose the house or have to go to their parents for money.

That was a problem that could be solved. Each arranged for additional life insurance. Term insurance is reasonable for young people and each placed $750,000 of coverage on their life. If one died, the other would be financially secure. If both died, the insurance would be paid into the estate and their child would have a nest egg of $1.5 million. That would be more than enough, even if they had another child or two and the estate had to be shared. At the end of the day, after everything was signed, Brad and Andrea felt good about it. They were acting like grown-ups. Brad could buy the new guitar later.

Most young people do not need to worry too much about having a will. That changes as soon as they have children.

A young couple should designate a testamentary guardian to take over the parenting role if both should pass away. The designation is not binding. A court still has to approve the arrangement if and when the time comes. Not designating someone can leave a disaster waiting to happen.

It is also important a young couple at least look at life insurance. What would it be like to raise the child alone without financial backing? More to the point, who in the family can be expected to take out his or her purse or wallet to support the child if the deceased parents failed to make adequate financial arrangements?

A will needs to be signed that appoints someone to hold the money for the children and chooses an age when the children are considered responsible enough to receive the inheritance. Clauses need to allow the money to be spent to support and educate the children while they grow up.

Having an estate plan is like using a car seat: both protect against an unlikely event, but the protection is important. No one wants to take risks with their child.

Brad and Andrea are real. Their names and other details have been changed to protect their confidentiality.

John E. S. Poyser is a Winnipeg lawyer with the Wealth and Estate Law Group. Contact him at 947-6801 or jpoyser@inksterchristie.ca

Republished from the Winnipeg Free Press print edition April 18, 2012 B9