New parents estate planning often falls toward the bottom of people’s “to-do” lists. This is especially true for young adults and people who find planning for incapacity or death to be unsettling. If you have put estate planning off, regardless of your reasoning, now is the time to do it; particularly with estate planning, sooner is better than later. Thinking about the future and creating a plan to address various contingencies is simply the right thing to do, especially for parents with minor children.
Over the years, the general consensus of my family, friends and clients alike has been that estate planning is a daunting task; but, with a little preparation beforehand, the process will be easier. With decades of experience and the input of a new mother of a baby girl who has not yet begun the estate planning process, I put together the following Q & A to help readers get acquainted with the process and prepare for their first meeting with an estate planning professional.
Everyone needs an estate plan, correct?
The most basic definition of estate planning is avoiding a mess. To do so, every adult needs to plan for incapacity and death. Those who are parents have more at stake. All parents, regardless of wealth, should have an estate plan in place to set forth their wishes for the care and well-being of their children, among other things. These wishes involve who should be nominated to care for the children, how the needs of the children will be met and when the children shall receive the estate. The nomination of a guardian is usually what first prompts a parent to look into estate planning.
What is the legal definition of a guardian and how is one appointed?
A guardian is a court appointed representative who has legal authority to give custodial care to a minor. In most instances, a surviving parent continues the role of guardian for minor children. However, if neither spouse survives, or if neither is able to act, the court must appoint a guardian. Consequently, it is extremely important to nominate a guardian in a will. Without doing so, it will be up to the court to appoint the guardian. While the court will attempt to make the appointment in the best interests of the children, the party appointed may not be one’s first choice, and in some instances, he or she may even be one’s last choice.
What is the process of nominating a guardian, and how is this done?
A guardian is nominated in a last will and testament. The selection of the potential guardian can be a very difficult decision and one that should not be made without careful consideration. For many people, it’s not easy to think about another person raising their children. This process becomes more difficult because it is important to name an alternate guardian, as well, should the primary nominee be unable to serve. If no alternate is nominated, it will be up to the court to appoint the guardian.
What should I consider when selecting a guardian?
There are several factors to consider when choosing a guardian, including age, values, temperament, maturity, spirituality, the relationship with the children, integrity, stability, willingness to serve and health, for example. Logistical considerations may also be a factor; selecting a local guardian, or one who is willing to relocate, may be important for those who do not want their children to have to change residences, schools, or churches, for example.
Ultimately, there is no perfect fit for guardian. The new mother I mentioned decided that her aunt will likely be selected as her daughter’s guardian, and while she’s a nearly perfect fit, she’s not because of her older age. Still, she has great moral character and would raise the baby with love and stability. Also, very importantly, she confirmed that she would be willing to serve.
Is it possible to name a couple as co-guardians?
It is, but it may not be advisable unless one is comfortable with either guardian serving in a sole capacity. Should one of the co-guardians become unable to serve or should the couple separate, it is important that one is comfortable with either party serving.
In the case of the new mother, as previously mentioned, she and her husband will likely select her aunt (not her aunt and uncle, as her uncle would not be able to serve as the sole guardian). It’s important for both parties to be on board and for everybody to be comfortable with both parties who are nominated; or include language to disqualify one of the parties should they be the only party available to serve.
How should I leave assets to my child?
The most common approach is to leave assets to a trust for the benefit of the child.
What is a trust?
If a trust is created in a will, the trust is referred to as a testamentary trust. The trust is established upon administration of the will and is designed to administer assets of the decedent as well as any property generated as a result of the decedent’s death, such as life insurance proceeds. The primary benefit to leaving an estate in a trust is to delay distribution of assets until a specified age (or series of ages) when the children are old and mature enough to properly handle the inheritance. During the term of the trust, however, the trustee may distribute assets for purposes of education or other prudent needs of the children. Testamentary trusts can also serve as a mechanism to protect the assets from outside sources, such as creditors. When assets are distributed from the trust to the trust beneficiary, the assets may become available in pending divorce proceedings, bankruptcy proceedings or other litigation involving the beneficiary. However, assets that remain in trust for the benefit of the children are generally protected from these types of creditor claims.
What are some considerations for choosing a trustee?
Selection of the trustee is a very important part of the estate plan. In fact, the role of the trustee can be one that lasts much longer than the role of the guardian. The need for the guardian most typically ends when the children reach age 18 – the age of majority. However, the appointment of the trustee is effective until the trust assets are distributed and the trust is terminated, most typically when the children are in their twenties, thirties or later. In addition, the role of the trustee is much different than the role of the guardian. For instance, the custodial care of minor children is a much different job requiring different skill sets than that of a trustee responsible for managing assets. The factors to consider when evaluating candidates for trustee are also a bit different. It is important to select a trustee who can properly identify the distinction between the “needs” of the children and the “wants” of the children. Depending on the specific terms of the trust, the role of the trustee is to step into the shoes of the parent and provide for the children as the parent would. Consequently, the trustee must understand the values and objectives of the parent. The person must also have integrity and be willing to engage asset management advice to ensure the trust assets are invested wisely.
In the case of the new mother, her aunt would likely serve as both the guardian and trustee.
An estate plan for new parents involves more than just planning for children. New parents must also consider planning for incapacity through health care directives and powers of attorney. In addition, there are planning considerations related to beneficiary designations, taxation, blended families, business ownership, and more. However, all of these items can be efficiently addressed in conjunction with the planning for children. Like the new mother, resolve to get it done, and you will have peace of mind knowing that you are prepared should the unexpected occur.
David Ness heads FMJ’s Trusts & Estates group. Our Trusts & Estates group can help you create and implement an estate plan in a timespan that fits your needs. We make estate planning simple and affordable. Email us today at estateplanning@fmjlaw.com to have someone from our Trusts & Estates group contact you. We offer complimentary 30-minute initial consultations and flat-fee estate planning to fit every budget.
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