One aspect of estate planning that can be overlooked is that of choosing a guardian or conservator for your child (or children). It is difficult to focus on what would happen if you couldn’t manage the care of your dependents. There are many legal and emotional components to consider. Don’t let the care of your most precious asset be left to chance. While much of the focus of this process centers around the actual selection of a guardian, there are far-reaching matters to consider.
Consider These Points…
First Responders – Designate temporary guardian(s) who have the legal authority to take custody of your child(ren) immediately. Should none be designated, your child(ren) will end up in Child Protective Services. Be sure that these people are aware of their role, have the necessary documentation, and that other caregivers have clear instructions.
Long-Term Guardians – Prepare legal documentation designating who will care for your child(ren) long-term. This is the part where many parents stall in the process. It may not be clear-cut for you to determine who would best care for your child(ren). Do you have family members or friends you could consider? Do they share your values, and do you feel certain that they will raise your child(ren) in a way you would want? Is their age appropriate for the task of raising your child(ren)? Will they be a good fit? Are they willing and able to take on this role? Be upfront with the people you are considering for this role and with other family members or friends who may have made assumptions about your wishes.
John A. Warnick of the Purposeful Planning Institute has put together a thought-provoking guide to selecting the “right” guardian for your child(ren). He simplifies the process into four easy steps that you can use to help you make a final selection. As quoted, “There is no Perfect Guardian. But there are Good, Better, and Best Guardians.” Don’t let a quest for perfection prevent you from making this vital decision.
Financial Resources – Be sure to provide enough financial resources for the care of your child(ren). If you have assets in an estate, you need to ensure that they will be available to your child(ren)’s guardian. If your estate and savings alone are not enough, consider insurance. Ensuring that adequate financial resources are available allows you to focus less on the financial picture of your chosen guardian and more on what’s best for your child(ren) emotionally. Sometimes the caregiving guardian is not the best financial guardian. You may pick separate guardians in this case.
Probate – Assets that are subject to probate can be tied up in court proceedings, rendering them unavailable for the care of your child(ren). Consider putting these in a living trust, having payable-at-death accounts, and/or life insurance with a named beneficiary. Probate is not only time consuming, it can be costly. (See Asset Protection below.)
Asset Protection – Setting up a trust for your assets allows you to control the age at which your child(ren) receives their inheritance, as well as make provisions for expenditures. It can also serve to protect against predators, creditors, lawsuits, estate taxes, and even the claims a future spouse may make. It’s a common misconception that estate planning is only for the wealthy. The reality is that families of average means are likely to benefit even more, as they have limited financial resources that would be drained in the event of a lawsuit, divorce, or other financial judgements. Also, consider the fact that your child(ren)’s guardian may not be an ideal Trustee. Appointing a separate Trustee who can provide competent advice and make financial decisions in the best interest of your child(ren) can be a way to eliminate conflicts of interest between the guardian and your child(ren).
Estate Tax – Consider the impact on the estate from taxes. The value of the estate will determine whether it’s excluded from federal estate taxes. Important, too, is that some states impose a state-level estate taxation at a level significantly less than the federal threshold, making it much easier to cross. Take care to factor this in when considering the adequacy of financial resources for your child(ren) and their guardian. Maximizing the amount of funds available to them is usually a priority.
Get started today by seeking out the help of an expert. It’s important that you find an attorney whom you can trust and who specializes in estate planning. This person may be one of several people who make up your estate planning team. Your financial advisor will round out the team, ensuring that your current situation and goals are strategically aligned with your wishes.