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Minor Children

Do It Now: Name a Guardian for Your Minor Child(ren)

angel guardian and child

We know it’s hard.  Thinking about someone else raising your children can stop you in your tracks.  It feels crushing and too horrific to consider.  But you must.  If you don’t, a stranger will determine who raises your children if something happens to you – your children’s guardian could be a relative you despise or even a stranger you’ve never met.

No one will ever be you or parent exactly like you, but more than likely, there is someone you know that could do a decent job providing for your children’s general welfare, education, and medical needs if you are no longer available to do so.  Parents with minor children need to name someone to raise them (a guardian) in the event both parents should die before the child becomes an adult.  While the likelihood of that actually happening is slim, the consequences of not naming a guardian are more than intense.

If no guardian is named in your will, a judge – a stranger who does not know you, your child, or your relatives and friends – will decide who will raise your child.  Anyone can ask to be considered, and the judge will select the person he or she deems most appropriate.  Families tend to fight over children, especially if there’s money involved – and worse – no one may be willing to take your child; if that happens, the judge will place your child in foster care.  On the other hand, if you name a guardian, the judge will likely support your choice.

How to Choose a Guardian

Your children’s guardian can be a relative or friend.  Here are the factors our clients have considered when selecting guardians (and backup guardians).

  • How well the children and potential guardian know and enjoy each other
  • Parenting style, moral values, educational level, health practices, religious/spiritual beliefs
  • Location – if the guardian lives far away, your children would have to move from a familiar school, friends, and neighborhood
  • The age and health of the guardian-candidates:
  • Grandparents may have the time, but they may or may not have the energy to keep up with a toddler or teenager.
  • An older guardian may become ill and/or even die before a child is grown, so there would be a double loss.
  • A younger guardian, especially a sibling, may be concentrating on finishing college or starting a career.
  • Emotional preparedness:
  • Someone who is single or who doesn’t want children may resent having to care for your children.
  • Someone with a houseful of their own children may or may not want more around.

WARNING: Serving as guardian and raising your children is a big deal; don’t spring such a responsibility on anyone.  Ask your top candidates if they would be willing to serve, and name at least one alternate in case the first choice becomes unable to serve.

Who’s in Charge of the Money

Raising your children should not be a financial burden for the guardian, and a candidate’s lack of finances should not be the deciding factor.  You will need to provide enough money (from assets and/or life insurance) to provide for your children.  Some parents also earmark funds to help the guardian buy a larger car or add to their existing home, so there’s plenty of room for extra children.

Factors to consider:

  • Naming a separate person to handle the money can be a good idea.  That person would be the trustee in charge of the assets, but not guardian of the children, responsible for the day-to-day raising of the children.
  • However, having the same person raise the children and handle the money can make things simpler because the guardian would not have to ask someone else for money.
  • But the best person to raise the children may not be the best person to handle the money and it may be tempting for them to use this money for their own purposes.

Let’s Continue this Conversation

We know it’s not easy, but don’t let that stop you.  We’re happy to talk this through with you and legally document your wishes.  Know that you can change your mind and select a different guardian anytime you’d like.  The chances of needing the guardian to actually step in are usually slim (we always hope this is the one nomination that’s never actually needed); but, you’re a parent and your job is to provide for and protect your children, so let’s do this.  Contact us or call or office now for an appointment and we’ll get your children protected.

Parental Warning: If You Own Your Property This Way, You May Accidentally Disinherit Your Own Children

Owning property as Joint Tenants with Right of Survivorship is easy, common, and often disastrous.  Sadly, children – both minor and adult – are often disinherited.

While there are several forms of joint ownership, the one most people use (and the one considered in this discussion) is called “Joint Ownership with Right of Survivorship.” When one owner dies, the jointly owned asset automatically, by operation of law, transfers to the surviving owner.

  • Joint ownership is a very common way for married people to own their assets.
  • Joint ownership is also commonly used by aging parents and their adult children.

Joint Ownership Just Postpones Probate

In most cases, joint ownership merely postpones probate; it doesn’t totally avoid it.  If the surviving owner does not add a new joint owner (or place the asset in trust) before she dies, the asset will have to go through probate before it can go to the heirs.  Or, if the owners die at the same time, probate is required immediately.

Joint Ownership Can Cause You to Unintentionally Disinherit Your Beloved Children

Surprising to most parents, assets titled as “Joint Tenants with Right of Survivorship” are NOT controlled by their Will or Trust.  In fact, if you are the first owner to die, you can’t control what happens to that asset.

  • If you add a spouse who is not the parent of all of your children as a joint owner, you will disinherit your children from a previous relationship.
  • If you add one child as a joint owner, you will disinherit your other children.

The transfer of ownership takes place immediately upon your death. Even if your Will or Trust directs that you want someone in particular to receive your share of a jointly owned asset, it will still go to the surviving owner.  The surviving owner can then do whatever he or she wants with the entire asset.

Here’s an example:

After Robert died, Joan owned their vacation home outright. She remarried a few years later, and she added her new spouse’s name to the title. When Joan died, her children were shocked to learn that the new husband now owned the property, even though their father had always promised it would stay in the family and go to the three of them. 

Other Risks of Joint Ownership

  • While it’s easy to add a co-owner’s name to a title, taking someone’s name off a title can be difficult. If the person does not agree, you could end up in court.
  • Your assets are exposed to the other owner’s debt and obligations. For example, if you add your adult son on the title of your home and he is successfully sued, you could be forced to sell your home.
  • There could be serious gift and/or income tax consequences.
  • If you add a minor as a joint owner, the only way to sell or refinance the asset is through a court guardianship.
  • If you need to sell or refinance and your co-owner is incapacitated and unable to conduct business, you’ll have to ask the court to appoint someone to sign for your co-owner (even if that co-owner is your spouse). Once the court gets involved, it usually stays involved to protect the incapacitated owner’s interest until the incapacity ends or the person dies.

Actions to Consider

  • To avoid both inconvenience and tragedy, call our office immediately to set up an appointment and have your asset ownership reviewed.
  • We will review your asset ownership and explain what will happen to your assets if you become disabled and when you die.
  • We will show you how to own your assets to best ensure your estate plan works, meaning it does what you think it’s going to do.

Joint ownership with a sibling, life partner, business partner, child, spouse, or anyone else, puts your assets and your children’s inheritance at risk.  It may cause significant and unnecessary taxes and cause your estate plan to fail.  To avoid both inconvenience and tragedy, you are invited to call our office right now.

What Estate Planning Awareness Means For You

The third week of October is National Estate Planning Awareness Week (Oct. 15-21, 2018). Estate planning is important for everyone regardless of wealth or family status because if you become incapacity or pass away without an estate plan, you are leaving the distribution of your assets subject to state law – and the results may not be what you want or expect.

Estate Planning ExplainedThings to Know About Estate Planning

Estate planning includes the growth, protection, and transfer of a person’s wealth through the creation and maintenance of an estate plan. The concept of estate planning is important and twofold: (1) to have a strategy that will maintain your financial security during your lifetime, and (2) to ensure that your intended transfer of property and assets occurs upon your death. Both of these issues are analyzed through the lens of the unique situation of the family and the possible expense of different methods used in the estate plan.

Benefits of Estate Planning

There are several benefits to having an estate plan. At a minimum, an estate plan provides clear written guidance to your loved ones on what to do with your assets when you are deceased. But perhaps the most important reason is to be in control of how your family is provided for in the event of your death or incapacity. Estate planning can address several issues including:

  • Who will raise your minor children,
  • Who will inherit your assets and how they will be distributed,
  • Who will care for loved ones who are unable to care for themselves,
  • Who will care for your pets, and
  • Who will receive your life insurance and other insurance proceeds.

Finally, good estate planning can ease the time-consuming, administrative strain placed on your family during an already difficult time.

Estate Planning Statistics

According to studies[1], 6 in 10 adults have not put a will in place. And, while many have likely heard that it is wise to avoid probate – the legal process by which the assets of a deceased are disposed of under court supervision – many do not understand why probate should be avoided. Three main issues with probate include: (1) the tying up of the decedent’s assets for months or even years while the probate is open, (2) the cost, sometimes as much as 5 percent of the estate’s value is spent on attorney and court fees alone, and (3) the loss of privacy in the probate process when it comes to the decedent’s financial information.

There are many financial and legal tools that may be used in the estate planning process. Contact us today to discuss your situation and learn about your specific options.

[1] https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html

Should Your Child’s Guardian and Trustee be the Same Person?

If you have overheard any discussion about estate planning, you have likely heard the words “guardian” or “trustee” tossed around in the conversation.  When it comes to estate planning, who will be ultimately in charge of your minor child is an important decision that requires consideration of many factors.  Although there is no substitute for you as a parent, a guardian is essentially someone who steps in as a parent, assuming the parental role and raising the child through adulthood.  A trustee, on the other hand, is in charge of managing the financial legacy that has been left behind for the minor.  As a parent, you need to take into account the characteristics needed for each role.

Who Makes a Good Guardian?

When choosing a guardian, the top factor to consider is who is the best person that will love and raise your child in a manner that you would.  This would include religious beliefs, parenting style, interest in extracurricular activities, energy level, and whether or not he or she has children already.  Keep in mind that a guardian will provide day-to-day love, care, and support for your child.  While the guardian you choose may be great with your children, he or she may not be great with money.  For this reason, it may make sense to place the financial management of your minor child’s funds in the hands of someone else.

Who Makes a Good Trustee?

Not surprisingly, when choosing a trustee the most important characteristic is that he or she is great with finances.  Specifically, the trustee must be able to manage the funds in accordance with your intent and instructions that are left in your trust.  Consider whether he or she will honor your wishes.  Likewise, should you choose to grant your successor trustee discretion in making financial decisions regarding the management of funds left behind you should ensure the individual’s decisions will be aligned with your intent.  In short, you want to choose a successor trustee who will act in your minor child’s best interest within the limits you have set forth in your estate plan documents.  If you choose two different people for the role of guardian and trustee, make sure to consider how the two get along as they will likely have to work together throughout your minor’s childhood and possibly into adulthood.

Seek Help to Make Your Decision

While estate planning can be daunting, it does not have to be.  Contact a knowledgeable estate planning attorney to help guide you through this process.  We can explain your options and advise you on the best plan that will follow your wishes while at the same time meeting your family’s needs.

Five Considerations When Selecting a Guardian for Your Children

There is no question that having children changes everything — and estate planning is no exception.  If you and your spouse pass away or become legally incapacitated, and arrangements were never made in the event of such an emergency, your minor child or children will have to be placed with a new family.  Not surprisingly, such a drastic change can be a disruptive process for minor children — even if they are placed with members of your family.  If you choose a guardian for your child in your will or other estate plan documents this difficult time can go much more smoothly.

Who Makes a Good Guardian?

A guardian for your minor child “steps into” your shoes in the event you can no longer care for him or her.  No one wants this to happen, but when a parent becomes incapacitated or dies, the minor child left behind will need care.  Because a guardian plays such an important role in your family’s life, there are several factors to consider when choosing someone to take on this role:

  1. Shared values. It is best to choose someone who has a common level of religious belief.  For example, if you are not the religious type you may have objections to someone who would expect your child to join and regularly attend church.
  2. Parenting style. Whether you run a tight ship at home or prefer a laissez-faire approach to raising children, choosing someone who will continue in your style is likely the best fit.
  3. Involvement. Someone who travels all the time will not be able to regularly show up to your kids’ soccer games, gymnastics meets, band concerts, and live theater performances — an important part of being a guardian to your children.
  4. Energy level. Having the stamina to be able to keep up with your child — especially during the younger years — is an important factor.
  5. Other children. While a potential guardian who already has children should not be a deal breaker, you should consider how adding more children into the family will affect the dynamic, particularly when it comes to the ages of the kids.

Other Factors to Consider

In the same manner that you can choose different individuals to manage the estate’s finances and your minor children’s day-to-day needs, you can also choose more than one guardian for your kids.  You may want to assign one guardian per child, depending on your family’s circumstances.  That being said, setting up guardianship this way may result in your children being separated from one another, which is usually not a good outcome.  Choosing someone who has the resources to care for your children — even if you have left money behind for their care — should also be a factor to consider.  Finally, choosing someone who is young enough to be able to care for your child through his or her adulthood, as well as someone who is in good enough health to withstand the challenges of raising a child, are important factors that should be taken into account.

Once you have made a decision on who will be your child’s guardian, contact an experienced estate planning attorney.  We can draft the documents you need in order to make this legally binding, as well as create an estate plan that suits your family’s needs and will protect your loved ones in the event you are no longer able to do so yourself.

Protecting Your Children’s Inheritance When You are Divorced

Consider this story.  Beth’s divorce from her husband was recently finalized.  Her most valuable assets are her retirement plan at work and her life insurance policy.  She updated the beneficiary designations on both to be her two minor children.  She did not want her ex-husband to receive the money.

sorry rose

Beth passes away one year after her divorce.  Her children are still minors, so the retirement plan and insurance company require an adult to be appointed to receive the inheritance Beth left behind.  Who does the court presumptively look to serve as the caretaker of this money?  Beth’s ex-husband who is now the only living parent of the children.  (In some states, this caretaker of the money is called a guardian, whereas in others it is the conservator.  The title does not matter as much as the role, which is to manage the funds on behalf of a minor, since the minor is not legally able to handle significant assets or money.)

Sadly, stories like Beth’s are all too familiar for the loved ones of divorced people who do not make effective use of the estate planning tools.  Naming a beneficiary for retirement benefits or life insurance, or having a will can be a good start.  However, the complexities of relationships, post-divorce, often render these basic tools inadequate.  Luckily, there is a way to protect and control your children’s inheritance fully.

Enter the Trust

A trust allows you to coordinate and control your estate in a way that no other tool can.  For those who are not yet familiar, a trust is a legal arrangement for managing your property while you are alive and quickly passing it at your death.  There are a few key players in the trust.  First, there is the person who created the trust, often called the Trustmaker, Grantor, or Settlor (this is you).  Second, there’s the Trustee who manages the assets owned by the trust (usually you during your life and then anyone you select when you are no longer able to manage the assets).  Finally, the Beneficiaries are the people who receive the benefit of the trust (usually you during your life, and then typically children or anyone else you choose).

How a Trust Protects Your Children’s Inheritance after a Divorce

A trust protects your children’s inheritance in a few distinct ways:

  1. Since you select the Trustee, you can choose someone other than your ex-spouse to manage the assets.  In fact, you can even state that the ex-spouse can never be a Trustee, if you wish.  If Beth had a trust, she could have named her brother to be Trustee after her death.  Her brother (rather than her ex-husband) would then be in charge of the children’s inheritance.
  2. Since you select the Beneficiaries, you can determine how the trust assets can be used for them.  You may have long-term goals for your beneficiaries, such as college, purchasing of a first home, or starting a business.  When you share your intent, your Trustee can invest the assets appropriately and ensure your legacy is used the way you want, rather than the assets being potentially wasted or used in a thoughtless way.  If Beth had a trust, she could have instructed how she wanted the inheritance used, rather than leaving it to the whims of a court and her ex-husband.
  3. A fully funded trust avoids probate, so your children do not have to deal with the cost, publicity, and delay that is all-too-common in probate cases.  Although “plain” beneficiary designations, like the one that Beth used, also avoid probate, they may still open the door for a guardianship or conservatorship court case, especially when your children are minors.  A fully funded trust avoids these guardianship and conservatorship cases.  This means more money for your intended beneficiaries and less for the lawyers and courts.

If you are divorced, it is essential to make sure your plan works precisely the way you want.  Every situation is unique, but we are here to help design a plan that achieves your goals and works for your family.  Call or contact us today.

How to Leave Your Life Insurance and Retirement Plan to Your Minor Children

Your children are your pride and joy.  It is no surprise that at some point or another, every parent likely becomes concerned about who will care for a minor child or children if one or both parents die or are incapacitated.  From a financial perspective, many parents turn to life insurance in an effort to take care of their family in the event of death.  While it is true that life insurance is a particularly helpful financial tool to protect your loved ones, it is just as important to consider how to leave the proceeds to your minor children.  Beyond this, you should also take into account how to incorporate your retirement money (IRAs and 401(k)s), another common, significant asset into your overall estate plan.

Once you decide to purchase life insurance you will name a beneficiary of the death benefits.  You also name a beneficiary on your retirement accounts.  But, if you fail to have a system in place and your children are minors at the time they inherit these assets, the court will appoint a property guardian or a conservator (the title depends on state law, but the role of this person is to “watch over” a minor person’s money).  This process will require attorneys’ fees, court proceedings, supervision from the court, and will generally limit investment options — all costs and delays that will not help your children, but rather cost them a significant percentage of their inheritance.  Another downside?  Whatever’s left when the child becomes an adult (usually at age 18, but may be older, 19 or 21, in some states) will be handed over, without any guidance or boundaries.  This can impact college financial aid opportunities as well as open up a ready opportunity for irresponsible spending that most parents would never intend.

How To Leave Assets?

There are several ways in which you can structure your life insurance policies, retirement accounts, and overall estate plan to benefit your minor children in the most streamlined way possible.

First, instead of naming minor children as beneficiaries, use a children’s trust to manage and use the money for the benefit of your children.  This lets you designate someone you think will manage the money well, rather than leaving it to the whims of the court.

Second, select and name a guardian to handle the day-to-day care for your children.  This person can be different than the person managing in the money, which can sometimes work well depending on the amounts involved and the different skill sets needed to manage money versus raise children.

Third, if you have a living trust, make sure you have properly funded the trust and aligned your retirement assets with the plan.  If you do not yet have a trust, consider the benefits of one over will-based planning.  Both types of plans will allow you to designate how much and when your children will receive the money, but a trust-based plan will allow you to do so without court involvement.

Benefits of a Trust

Generally, parents list a minor child as the secondary or contingent beneficiary on life insurance and retirement accounts after first naming the surviving spouse as a primary beneficiary.  This may work, as long as everyone dies in the “right” order and at the “right” time.  But, it’s a gamble, and providing structure through a trust for these inheritances is a vastly better option.  Unlike guardianship or custodian accounts, where the proceeds must be handed over once the minor(s) turns a certain age, you can specify at which age your child receives the proceeds.  This allows you to specifically designate how the money is to be used, so it will be available for the important life events, while protecting your children from reckless spending.  Ultimately you have more control with a trust, and your customized plan will provide the best protection for your family.

If you have any questions about how to leave assets to your minor children — whether it is a life insurance policy, a retirement account, or any other asset — contact us today.  A legal professional can explain the options available to your family, determine what tax implications will result, and advise you on the best structure that will protect your family’s needs.  Call or contact our office today to schedule a time for us to sit down and talk.

IRAs, Annuities, and Guardianship – Providing for Your Minor Children After You Die

IRAs, Annuities and Guardianship:

Providing for Your Minor Children after You Die

Deciding on a guardian for your minor children may very well be the most vexing decision you’ll make regarding your estate planning.  Not only must you trust the appointed guardian to raise your children as you’d want them raised, but you also need that person to be financially responsible with your children’s inheritance.  For example, if you have an IRA or an annuity that you wish to pass to your minor children, how can you ensure those funds will be used properly—especially if the person you trust most to raise your kids isn’t necessarily the best with finances?

This question is multifaceted, so let’s unravel one aspect at a time.

The Question of Guardianship

Here’s the good news: The person who raises your minor children and the person who handles their inheritance don’t have to be the same person. If necessary, you can appoint one guardian to serve each function, naming one as the guardian of the person and another as the guardian of the estate.  In this arrangement, you entrust one person with your children’s assets and another with their care, while enabling each to interact with the other.  This dual guardianship model gives many parents peace of mind—knowing they don’t necessarily have to risk their children’s inheritance while ensuring that they are raised according to the family’s values.

Although guardianship of the estate is an option, for many families the best strategy for financially providing for the children is to use a trust.  In that case, a trustee fulfills the responsibility that would otherwise belong to the guardian of the estate.  The trust assets can be released to the children or the caregiver incrementally according to age and needs.  For example, the trustee could distribute money for the children’s needs until age 18 and then manage for the money until the child is a financially mature adult.  Your trustee may also exercise discretion in investing and distributing the funds for the children’s support, education, etc., coordinating with their physical guardian to ensure the children’s needs are met until they come of age.  This can ensure that the assets are there when they’re needed for your family.

Passing an Annuity to the Children

Annuities pay out regular income—which can make them convenient vehicles to cover ongoing expenses for minor children.  If you have set up an annuity for yourself or a spouse, you can name the children as beneficiaries, or you can also name a trust for the benefit of your children.  If you are still paying into the annuity at the time of death, your children may receive the balance, or you may give a trustee the option of rolling the balance into another annuity to be paid out to the children at a later maturity date.  If you are already receiving annuity payments yourself, the children may simply continue receiving these payments for the remainder of the term.  Depending on your annuity contract, payouts may also be made lump sum.  Annuities are a very flexible financial product with many different options.  If you have annuity now, or if you are considering purchasing one, bring it up with us as we work on your estate plan so we can make sure it meshes with your will or trust seamlessly.

Transferring an IRA to the Children

Individual Retirement Accounts (IRAs) are also excellent vehicles to pass along wealth for minor children’s welfare—because, unlike most annuities, they have the ability to grow over time and can provide a lifetime of financial benefit to your children.

When you name the next generation as beneficiaries on an IRA, you effectively extend the IRA’s life expectancy.  While the required minimum distribution payments to the children will be smaller than they would have been for you (since, according to the IRS’s rules, they have a longer life expectancy), the account balance can remain invested for growth over time.  Your financial and tax advisor can evaluate your situation to help you decide which type of IRA (Roth or traditional) is the best option for your goals.  And we can work with you to make sure that the IRA is fully protected against creditors, predators, and bad financial decision making with an IRA trust.

Planning for the welfare of minor children after your death is neither simple nor pleasant to consider, but it’s absolutely necessary for peace of mind.  Determining the right person(s) to be the guardian of your children requires careful thought, but you don’t have to sacrifice your children’s inheritance for their proper care.  With the right financial plan, you can manage both facets successfully.  As always, we’re here to provide assistance and explain your options.  Call or contact our offices for an appointment today.