This article discusses many frequently asked questions from new (or not so new) parents, such as: Who will care for my child if something happens to me? What do I do if the person I want to care for my child physically and emotionally isn’t the same person who I want to manage his money? I have a life insurance policy, but in the event of my death, how do I make sure that the lump sum doesn’t come to my child when he reaches age 18? It also addresses why, in many cases, the smaller your family, the more important it may be to execute the proper estate planning documents.
Although this article is written with single parents of minor children in mind, much of this advice can also apply to married or cohabitating couples with children of any age. For the sake of brevity in this article, I have used the masculine pronoun to denote the child, and the feminine pronoun to denote the guardian.
- How do I choose a guardian to care for my child in the event of my death or incapacity?
First, notice that this question distinguishes between choosing a guardian in the event of your death, versus, for example, a medically-induced coma (for a – hopefully – limited period of time). Although the guardian whom you name may be the same person in each instance, the difference is that one (the guardian in the event of death) is designated under your Last Will and Testament, while the other (the guardian in the event of incapacity) is designated under your Financial Power of Attorney (in the State of Maryland) or by the preparation and execution of a document called a Designation of “Pre-Need” or “Standby” Guardian (in some other states).
Regardless of the applicable document, is imperative that you designate someone who will care for your minor child in your absence (and the absence of another parent). A guardian could be necessary because you are a single parent who becomes incapacitated or dies, because you and your spouse die simultaneously, or because your spouse has died and you have become incapacitated.
So, what are some of the factors that you should take into account when choosing a guardian? You can start by asking yourself:
- Does she have/want to have children of her own?
- Does she have a similar parenting-style to me?
- Does she have a relationship with my family?
- Is she young and healthy enough to provide care for my child, at least until adulthood?
- Does she live close by to where my child is being raised or where our family/friends are located?
- Do I want multiple guardians (e.g. should the spouse, if any, be a legal guardian as well)?
Once you have chosen someone to designate, then the next two steps are crucial: (i) talk to the prospective guardian and confirm that she is willing to serve, and (ii) document your designation(s) with your estate planning attorney in both your Will and your Financial Power of Attorney.
- Should my child’s guardian also manage his money?
You will notice that none of the above-suggested factors take into account financial acumen.
If the guardian that you designate to care for your child’s health and well-being (the “guardian of his person”) is also the best individual to manage his property, then you may also designate her as the “guardian of the child’s property.” This may be the “Trustee” of a trust established for the child or the custodian of the child’s UTMA (Uniform Transfers to Minors Act) custodial account, as the situation necessitates.
However, the person managing the financial “property” or assets of your child does not need to be the same person who will provide the care of his person. If you want to designate your sister as the guardian of your child’s person, but she is terrible managing money, then maybe you want to designate your friend who has a finance degree as the guardian of the child’s property. Make sure, however, that the person designated as guardian of the property is not only a financially-prudent person, but also that she understands and respects your wishes and values regarding your child’s inheritance.
Again, a properly drafted (and executed) Will and Financial Power of Attorney is needed to assure that the appropriate persons are designated in accordance with your wishes, rather than the decision of a judge after your death based on what the law determines to be the best interests of your child.
- How do I make sure that my child’s inheritance is used prudently, according to my standards?
You may have purchased a life insurance policy at some point during your child’s lifetime (or in anticipation of having a child) with the hope that it will never be needed. Most people buy this policy to assure that a child is “taken care of” in the event of the parent’s death during the child’s minority. These same parents usually do not intend for their child to receive a death benefit of $250,000 or more in a lump sum upon the parent’s death as early as age 18. On the other hand, a parent may want the guardian to have access to that money prior to age 18 to use for the child. How do you make sure that your wishes are carried out from beyond the grave? Through your Will, established during your lifetime.
Within the pages of your Will, your attorney may draft a trust for the benefit of your child, laying out the terms by which he will receive his inheritance. With the appropriate coordination of a beneficiary designation on your life insurance policy (this is vital to the proper execution of this estate plan), the policy will (i) avoid probate (the court-supervised administration of an estate) and (ii) be paid to the Trustee of the child’s trust, rather than to a custodial account for the child, and then to the child directly upon his attaining age 18 or 21, depending on the laws of your state. Again, the Will is established now, but the trust is not established until after your death. It is sometimes referred to as a “testamentary trust.”
The terms of the trust can be practically anything you want. For example, you can say that your child may receive 25% of the trust assets (in this example the insurance policy proceeds) to use for education and related expenses, and then the child can withdraw one-third of the remaining trust assets upon attaining the ages of 30, 35, and 40. The exact provisions of the trust will be determined through a discussion with your attorney and will be based on your values and wishes for your child. In most cases, the Trustee will be permitted to use trust assets for the child at any time for his or her health, education, and support, even before age 18. In this instance, you can also set parameters for the use of the money, for example: “the Trustees may provide for my child’s needs while under age 18, with priority given to his private education, summer camp, and travel to see family members.”
Additionally, if a child is (or in the future becomes) disabled mentally or physically, gains creditors as he matures (credit card debt, medical bills, loans), or develops alcohol or drug dependence, then the inheritance held in this type of trust (with an independent Trustee – someone other than the child with control over the money) will be protected from these outside influences and in some cases, from the child himself.
- My family consists of only me, my son, and my mother, and my mother has agreed to serve as guardian, do I really need a Will?
Some people think that the smaller their family, the less necessary a Will and other estate planning documents become. The argument is that there is no choice in who gets your assets, and no one to fight a guardianship in court. Inversely, a Will is more necessary in most cases in a small family for a few reasons:
- A smaller family means it is more likely that a simultaneous death could occur. This means that you and your mother could die at the same time, leaving no one left to serve as guardian for your child. It also means that you and your child and mother could be in an unfortunate accident at the same time, and then who would inherit your estate? Without a Will in place to designate an alternate guardian, and “failsafe” beneficiaries of your estate, both of these become open questions.
- The person designated under a Will to serve as guardian has priority in the court. It will be easier for your mother to be appointed if she is named in your Will.
You also need a Financial Power of Attorney and Advance Directive for Health Care, regardless of the number of agents that you designate therein, to manage your assets and medical decisions in the event of your incapacity.
Through a Financial Power of Attorney, you may designate an agent to handle your finances if you are unable to do so. If you are over age 18, then no one, no matter their relation to you (including a spouse, child, or parent), will be able to manage your financial affairs during your lifetime unless they are designated under a valid Financial Power of Attorney, signed by you in accordance with the requirements of your State.
Similarly, an Advance Directive sets forth the scope of the authority for your health care agents to make medical decisions on your behalf, including your wishes with respect to artificial life support, and authorizes those health care agents to make decisions for you in the event that you are unable to express your wishes.
When the pool for choosing agents becomes smaller, it becomes even more necessary to choose the people who would act on your behalf in the event of your incapacity. If you do not have an Advance Directive, the state will choose based on a statute which lists the priority of those who will serve as your health care agents. In addition, a time-consuming and expensive court hearing will be needed for a guardian (“guardian of the person”) to be appointed to make decisions on your behalf. The same is true for a Financial Power of Attorney and the court-appointed “guardian of the property.”
- Everyone needs a Will, a Financial Power of Attorney, and an Advance Directive.
- The person you appoint as guardian to care for your child’s person does not necessarily have to be the same person who manages his money.
- Through the terms of your Will, you may dictate the terms of a child’s inheritance.
If you have further questions or to set up an estate planning appointment, please contact the author, Kristy Bayus Williams, Esquire at firstname.lastname@example.org or 410-938-8800.