How Can You Put a Value on a Stay-at-Home Parent?
Earning money to support your family is hard work. And while some people can work from home, most of the American workforce goes to work every morning, puts in a long day, and goes home every evening. A recent study showed that 44% of companies do not allow remote work.
But what if you have children. If both parents work, you need two cars, two business wardrobes, lunches, tanks of gas, and more. Daycare is expensive if you have young children and strangers raise your kids. If your children are older, they become latchkey kids with hours of unsupervised tv and video games while you are at work.
And these are the reasons why couples often have one parent work while the other stays home and takes care of the kids, the house, and practically everything else.
The Value of a Stay-at-Home Parent
Both parents are working parents, but the stay-at-home parent gets no payment for the massive amount of work they do. Traditionally, they are responsible for
● cleaning and maintaining the home;
● driving family members to activities;
● preparing meals;
● purchasing clothes, personal items, and household supplies for the family; and
● managing the household’s administrative needs (e.g., scheduling appointments, planning events, coordinating family schedules).
These day-to-day tasks and responsibilities are often unappreciated and almost always undervalued. Salary.com studies show that if stay-at-home parents were paid competitive rates for their work, the salary would be more than $178,000 per year.
If the stay-at-home parent died, the emotional loss would of course be tragic and nothing could ever replace them. But the cost of replacing all the work they did, is tens of thousands of dollars every year.
A Comprehensive Estate Plan
A comprehensive family estate plan should always include the financial burden of the loss of the stay-at-home parent. But it should also anticipate other life-changing events that might happen afterward.
The first step is to quantify the amount of money needed yearly to help with all those tasks that the stay-at-home parent did. Your qualified California estate planning attorney can help guide you in this area.
The next step is to plan the best way to fund all the necessary activities and tasks. And while increased insurance is often helpful, it is just one part of a comprehensive estate plan. There are different insurance plans, annuities, and investments to consider.
And what if the unimaginable happens?
What if the stay-at-home parent becomes incapacitated or passes away, and then the surviving parent passes away a year or two later?
So, the third step is to make sure all of this fits in seamlessly with the comprehensive estate plan for your family.
For example, you must decide how the funds will be held for the benefit of your minor children. Should they be held by the surviving spouse or in a separate account or a trust established for the children?
Many families use life insurance as a planning tool to help with these issues.
Life Insurance as Part of Estate Planning
While every family's needs are different, many parents use a life insurance trust as part of their comprehensive estate planning. This help ensures that the proceeds go where you want them to and are protected from creditors, predators, and unwanted potential beneficiaries.
A Life Insurance Trust is designed to be the owner or beneficiary of your life insurance. A life insurance trust is either an irrevocable or revocable trust.
Irrevocable Life Insurance Trust
Before the 2017 Tax and Jobs Act, Irrevocable Life Insurance Trusts (ILIT's) were used as the owner and beneficiary of the life insurance. This was primarily done for tax reasons because the estate tax exemption (unified credit) was 5.4 million dollars.
Legally and for tax purposes, the ILIT is a separate taxpayer. Therefore, at your death, the value of the ILIT, which includes the insurance benefit, is not included in your gross estate because it is not you. Therefore, no increased taxes on your estate.
The ILIT is a separate legal entity. But this only works if you do not have "incidents of ownership." The ILIT owns the life insurance policy and is the beneficiary under the policy. However, you must not be the trustee of the ILIT or have provisions that would cause you to have incidents of ownership.
Using a Revocable Trust to Hold the Life Insurance
But when the Act passed in 2017, the estate tax exemption was increased to 11 million dollars for individuals, indexed for inflation. In 2022 the exemption is now $12.06 million per person. Many taxpayers will not exceed that threshold and may decide to use a revocable trust to own or be the life insurance beneficiary.
A revocable trust is not a separate legal entity, and the IRS considers any income or benefit to be yours. The revocable trust income is added to yours and filed with your taxes using your Social Security number. There is no separate tax filing.
But if you do not need the tax benefit of the ILIT, a revocable trust is much more flexible. You can change or terminate the trust as the needs arise unless you become incapacitated. Suppose the revocable trust is the beneficiary of the life insurance. In that case, the death benefit proceeds are distributed to your successor trustee, and the funds will be distributed according to your trust.
Estate and Tax Laws Keep Changing
Qualified estate attorneys keep up with ever-changing laws, so you don’t have to.
For example, the estate tax exemption is scheduled to sunset in 2025 and reverts to the $5 million indexed for inflation in 2025. Unless the law is changed, or the current law is made permanent.
A qualified estate planning attorney can help you build a comprehensive estate plan to consider all the benefits and potential changes of complex estate and tax laws.
Your Next Best Steps to Protect Your Children
As parents, you can use trusts and insurance to protect your children’s financial future.
Trusts are one of the most powerful estate planning tools you can use to ensure your assets are distributed in the future according to your wishes.
And an insurance trust gives your trustee the flexibility to pay for your minor children's needs as they arise.
Let us show you how an insurance trust or other trusts might work for you and your family.
And although trusts and California trust and estate law may be complicated, this is all we do.
San Diego Legacy Law is a qualified estate planning attorney firm in San Diego, California.
We are familiar with all federal and California estate and trust laws. We know how to best help you achieve your estate planning goals, especially how to use trusts to ensure your wishes.
Call today for a free consultation and learn your next best steps.