Choosing a Guardian for Your Children
Most parents find it hard to consider the possibility that they not always be around to care for their children. That's probably why so many fail to plan for this contingency. If you're among them, here are powerful reasons to procrastinate no longer.
What Happens if You Fail to Plan
If you think that entertaining the notion of your own mortality is painful, consider what your children will endure if you fail to plan. In that event, the probate court will take over the task you should have done yourself. And once the courts get involved, any guarantees that the result will bear resemblance to your wishes go right out the window.
The courts will make decisions over two areas of responsibility: who will look after your children's physical care, and who will manage their finances. Sometimes the same person is given both roles, but not always.
If your children have a surviving parent, he or she will almost always be assigned as guardian over their physical care. Otherwise, the court will consider your closest relatives. As long as there's a blood relative willing to take on the task, non-relatives have little chance of becoming your children's guardian.
Children can't inherit money before age 18, so the probate court will appoint someone to watch over the financial affairs of underage children. But the courts don't leave it at that. Because the legal system wants to ensure that your children's inheritance is protected from mismanagement or misdeeds, it imposes requirements on your kids' financial guardian, even if their guardian is your surviving spouse. These requirements include: posting an annual bond (easily running into the thousands of dollars); submitting an annual report (often requiring the services of attorneys or accountants), and court approval on all major financial decisions. That leaves your children's financial guardian with little leeway for independent action. The court will have to approve in advance most transactions, such as sales of assets, a major purchase on your children's behalf, and even investment decisions.
Say that the guardian has a long last found a buyer for your vacation home. Before he can make the deal with the potential buyer, the transaction will have to be approved by the probate judge. Days, even weeks can elapse before that occurs. If the buyer becomes impatient, the opportunity is lost. Similarly, your children's investment opportunities may be limited. Courts tend to take conservative views on investments, preferring safe certificates of deposit to mutual funds, for example.
Bottom line: by failing to plan, you will have lost all control over how, when and why your children's money is spent. Instead, a total stranger -- a probate court judge -- will be in charge.
Planning Tips
When choosing a guardian for your children, you'll have to consider many factors. But topping the list should be the guardian's ability to love and nurture your children, as well as a willingness to take on this formidable responsibility.
Naturally, you'll also want to choose someone who shares your values. That might suggest the people who raised you: your parents. But keep in mind that raising children requires energy, patience and good health. Aging parents or older relatives may love your kids the most, but in the long run, they may not be up to the job physically.
Lastly, consider the prospective guardian's financial resources. You can help in this regard by ensuring that you provide for your children financially with life insurance or other assets. But if your prospective guardian is now having trouble putting dinner on the table for her own family, you may compound her burden beyond measure by adding more mouths to feed.
Once you've decided on a candidate, it's time for a heart to heart. Talk with your prospective guardian to see if she would be willing to take on the task. More than just a honor, serving as the guardian for someone else's children is one of the most important roles we can take on, and no one should assume lightly.
Planning Your Children's Financial Well-being
Now, let's talk about financial matters. Earlier we talked about the role the probate courts play if you fail to plan. Here's a surprise: the probate court will be just as actively involved if you've left money to your children outright, such as with a will or through beneficiary designations, such as life insurance.
That's why you may be better off leaving your assets in trust for your children's benefits. With a trust, you can appoint a trustee to invest, manage and distribute funds according to your written directions. That shuts the door on probate court: there will be annual reporting, no posting of bond, and no court supervision. Instead, the money you've left for your children will be managed and spent just as you would want it to be.
Another advantage to the trust is that it can last well beyond age 18, the point at which court-appointed guardianships end. Since few 18 year-olds are financially or emotionally mature enough to handle significant assets, a trust is an important tool in helping to ensure your children's financial security until they are ready to manage for themselves.
Getting Started
Most people use a will to declare their choice of guardian for their children. With trusts, however, you have several options. You can create one now that will last after your death. Or you can stipulate that one is created after you die. You can also create a special kind of trust designed solely to own your life insurance policy and manage the distribution of its proceeds. Which strategy will best help you achieve your goals for your children is something to explore with your estate planning attorney. Many will offer you a free initial consultation to review appropriate solutions. The important thing is to do something. Nothing less than your children's future could depend upon it.
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