03 Mar Leaving your estate to a baby
Q. My sister is having a baby. I want to make the baby the beneficiary of my estate. I’m not married and I have no kids. How should I handle this?
A. Congrats on becoming an aunt or uncle!
You have several options.
You could execute a will leaving your assets to the child.
“Fortunately you can execute a will, now, before the baby is born, and even if you were to pass away before his or her birth, the child would still be the beneficiary of your estate,” said Mary Scrupski, a Robbinsville-based estate planning attorney. “You will just have to be careful about how you write the will and be very specific that you intend to leave your estate to a child who is not yet born.”
Or you can wait until the baby is born.
Either way, you should consider using a knowledgeable trust and estate attorney to ensure that there is flexibility to address changes in circumstances over time without creating ambiguities or leaving open any loose ends, said Frederick Schoenbrodt, an estate planning attorney with Drinker Biddle & Reath in Florham Park.
“The will may, and probably should, provide that the assets left to the child will be held in a trust or other custodial arrangement for that child’s benefit,” he said.
If you set up a trust, you also have the flexibility to specify the reasons for distributions such as to pay for education or to purchase a home, Scrupski said.
No red Corvette for this kid, unless you say that’s okay.
Certain assets, called non-probate assets, are not subject to a will. They will pass according to whatever contractual arrangements you have established with the asset custodian, Schoenbrodt said. Typically, these are assets that are either jointly held or are subject to a beneficiary designation.
“For example, if you have retirement accounts or life insurance, those will likely pass in accordance with the associated beneficiary designation,” Schoenbrodt said. “You could update those beneficiary designations to name the child as your beneficiary.”
He recommends you review the account paperwork to see what will happen if the account is payable to a minor. You can also direct payment of those accounts to the trust for the child’s benefit, he said.
You should make sure that’s coordinated and overseen by a trust and estate advisor to ensure that it is done properly and tax-efficiently, he said.
You also need to realize that based on state law, any transfer under your will or even outside of your will to a niece or nephew will be subject to New Jersey inheritance tax.
The tax rate is 15 percent of the amount of the transfer, Scrupski said.
“This is the case even if you are not married, and have no children of your own and consider your sister’s child your closest relative to leave money to,” she said. “There will still be a 15 percent tax on the transfer.
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This story was first posted in March 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.