Are you the parent of minor children? If yes, then they are your most valuable treasure. So, what arrangements have you made for their care should something happen to you and their other parent?
As with your own personal, health care and financial decisions, would you rather select the guardians (i.e., back-up parents) yourself, or let a probate judge make the selection without your input? Only through proper legal planning can you select the guardians yourself.
Two Choices You Must Make
There are two critical choices commonly faced by parents of minor children. First, who will take care of my minor children, and, second, who will manage their inheritance?
1. Selecting Guardians (Backup Parents)
If the surviving biological parent of your shared minor children is still living when you pass away, then that parent will continue to be their guardian, absent a court-proven case of unfitness. Nevertheless, you will want to name alternates in your estate planning documents in case the other biological parent predeceases you.
While every family situation is unique, here are some general pointers to consider when selecting guardians for your minor children:
Select guardians who share your values and life priorities; and already have an established positive relationship with your minor children;
Consider, when selecting a married family member, appointing that family member only, in case your family member predeceases or they divorce;
Make sure your legal plans provide for the compensation of the guardians, or at least that the inheritance is available to cover all legitimate expenses incurred when rearing your minor children; and
Obtain permission of the selected guardians before appointing them in your legal instruments.
2. Selecting Trustees (Purse Strings Holders)
Great care must be taken when selecting a trustee to look after the inheritance. Simply put, a trustee is a person or institution legally responsible for the financial affairs of another.
Sometimes it helps to start with who you do not want to act in this role. For instance, what if you and the other biological parent are divorced or were never married? Even though he or she may raise your minor child or children to adulthood, would you also want them to control the inheritance you leave behind, too? Perhaps not.
There are three basic options when it comes to choosing trustees, each with its unique advantages and disadvantages.
Appoint trusted family members or friends. This is the most common option. On the upside, they likely know the strengths and weaknesses of your children, plus they may not charge much, if anything, to oversee the inheritance. On the downside, they may be busy with and distracted by their own life and financial responsibilities. Also, they may find it difficult to say “no” to an irresponsible child.
Appoints a professional fiduciary, such as an institution (i.e., a trust company) or an individual (i.e., your CPA). Interestingly, the upsides and downsides are the exact opposite of Option 1.
Appoint a combination of Option 1 and Option 2. In short, the family member trustee knows the strengths and weakness of your children, and also has an independent third party professional trustee to help preserve family relationships when the minor child asks for a Ferrari, and to keep the family member trustee from being bogged down with investments, accounting, tax, and legal details. Instead, the professional fiduciary shoulders (and is rightfully compensated for) the day-to-day management of the inheritance and the technical matters involved.
Selecting guardians and fiduciaries is essential for the well-being of your minor children if something happens to you. Few decisions in life are more important. Only you can make and document these decisions through proper estate planning.