Your youngest just moved out. Perhaps you moved him out to go to college. Perhaps she got married. Or, perhaps she got a job and decided to be more independent and live closer to work. Whatever the cause is, this time of year seems to lead to a lot of shed tears as parents become empty nesters.
But with those tears of separation are also some joyful thoughts. Thoughts like, “What are you going to do with the spare bedroom? Make it workout room, or an office?” Perhaps you’re foregoing the idea of changing that spare room altogether and are simply going to downsize to a smaller home. One that doesn’t require so much maintenance and doesn’t have such a large heating bill and is perhaps closer to work.
Simply stated, having the kids out of the house causes a lot of changes. But one of the biggest changes is that having the kids out of the house usually opens a large amount of disposable income. One less plate at dinner time. One less plane ticket to buy on vacations. One less person on the health plan. And no more soccer uniforms for school sports!!
For better or for worse, each of those changes will have an impact on your estate plan. The following are some items newly emancipated parents should consider for their estate plans:*
First, you don’t need to worry about who will be the custodian of your children any more. No longer will you and your spouse have marital disputes over whose sibling is better suited and more appropriate for the task of raising your children in the unfortunate event of your demise. That task is now obsolete. However, you may now need to consider how your parents will be taken care of now that they are elderly and need additional help and services.
Second, the assets you own have changed in value. You’re probably worth more now than you were as a young parent. Hopefully, you have more equity in your home. Your IRA is looking decent. If you own a business, it may have increased in value as well. If you’re in the right industries, you may have deferred compensation, a military pension, a union pension, or some other benefit to consider. For some people, some of those items that you’ve been storing in the back of your closet, like your collection of now vintage baseball cards, or your collection of vinyl records, may finally be worth something! (But probably not your beanie babies). That increase in value will have consequences in your estate plan, and those consequences need to be addressed.
Third, those trusts to hold money for your children until they reach age a maturity may now be obsolete. Many estate plans for young children include Trusts to hold funds until children are at an age where they can act responsibly with that money. Those Trusts typically are designed to help pay for education, health, maintenance of your children. Some more complicated estate plans may even designate money to help a child start a business of their own, or to help the child make a down payment on their first house. Each of those need to be revisited and assessed considering your children, and how they act around others.
Perhaps you can now trust the child to leave their inheritance outright to them, and avoid the expense of having a fiduciary. Perhaps your child may still need that intermediary, or perhaps their spouse can’t be trusted, and you need to adapt your estate plan to consider those changes.
Fourth, you may not need as much life insurance to take care of your family. Now that it’s just you and your husband or wife at home, you may not need the same life insurance amount as you previously needed. You no longer need a life insurance policy that will get your kids through college. You also have an IRA now, and other assets that can sustain your spouse if you were to pass away. Your need for life insurance probably isn’t as necessary as it previously was.
Or, conversely, perhaps, you need life insurance as part of your estate plan to help pay estate taxes or other expenses. If you have a home and a house on Cape Cod that you want to pass down to your children, or if you have a business that you want to pass down to your daughter who works there more than anyone else, you’ll still need to consider how the IRS and the state will get the amount that they will demand to be paid.
Fifth, you may need business succession planning. If you own your own business, now that you don’t need as much money, you may not want to work as much. You may entertain the idea of hiring a new manager or new key employee with the enticement that you will gradually transfer the business to them. This would allow you to take more vacations and simply work shorter days while they take on the difficult duties that you once performed. This strategy may not work, but ultimately, you may need to consider who will be the next business owner, and how you will train and transfer the business to them.
Sixth, you may want your children to serve in fiduciary capacities now that they are mature adults. As you send your children into the work force and off to college, you may be at a point where you can trust them to serve as fiduciaries, either independently or with a professional. You may want to consider them to be the Personal Representative of your estate; or as the Trustee on a Trust. You may want to give them Power of Attorney to take care of your expenses and legal matters if you are incapacitated. Or you may want to give them the right to make health care decisions for you if you are unable to make those decisions on your own.
Seventh, you may want to consider your future grandchildren. Your children may be starting their own families, and you may need to address how you will consider your grandchildren in your estate plans and your children-in-law in the event that your child passes prematurely. Perhaps you want to establish a 529 Plan for your grandchildren’s education. Perhaps you can trust your child, but not his spouse, and want to make certain your child’s “share” of your estate is in a Trust for your grandchildren if your child passes away before you. Perhaps one set of grandchildren will need more help than their cousins. There are lots of tough decisions for grandparents to consider.
Eighth, you may be in a position to be philanthropic in your distributions. Many people want to leave a legacy to charities. Many people leave a portion of their estate to schools, churches, sports organizations, environmental protection organizations, and million other causes. You need to consider which organizations merit your contributions. Additionally, many people leave a clause in their estate planning documents, which in the sad event that you outlive all of your posterity, leaves a gift to a charity of your choice rather than have your assets escheat to the government per state law.
Ninth, you may want to consider how your parents and relatives might leave assets to you. You may want to consider how your estate plan will look like with the family lake property or the family farm. Perhaps, Mom’s Italian Cookbook is still making royalties. Or you know that weird sculpture that your bachelor Uncle Wayne “promised you,” which despite being really odd looking, is now appraised to be worth well over $100,000? What on earth are you going to do with that?
So, in sum, congratulations on becoming an empty nester. Good luck in this next stage of your life! It will be hard some days when things are too quiet. But you’ll find some solace on your nicer vacations, and while driving along in your Corvette.
*This is not legal advice. Please speak with an attorney concerning your circumstances to get accurate counsel for your legal questions.