Congratulations, you finally did it! You did what you’ve been procrastinating all this time and finally named a legal guardian for your child.
This means if something happens to you the guardian can:
make medical decisions for your child;
make decisions for your child concerning the education, development and overall wellbeing;
nurture and love your child as their own.
But what about the money?
Your guardian will have a legal obligation to provide for your child whether-or-not you leave behind any assets to assist the guardian in caring for your child. This is a good reason to carry life insurance on you and your spouse.
You can address this in your will at the same time you name a guardian. First, you can name a conservator in your will. The conservator can be the same person you choose to be your child’s guardian.
The risk you take in naming the same person to be guardian and conservator is there are fewer checks and balances. It is easier for the guardian to irresponsibly manage your child’s money, although they are accountable to the court for how they manage and spend your child’s money.
Your child’s guardian will hopefully do a good job nurturing your child, but they may not be so good with money. Appointing a different person to manage the money creates more checks and balances but does require the guardian to go to the conservator for money, which can create conflict.
You just have to make the best decision you can given the personalities and dynamics involved in your specific situation.
A conservator’s job is to manage the money and property you leave behind for the benefit of your child. The conservator is accountable to the court for how they manage the finances on behalf of your child and must file an accounting with the court at least annually until your child turns 18.
While your child is a minor, your conservator can pay expenses on their behalf for their health, education, maintenance and support. But there’s a catch.
When your child turns 18, they get whatever is left over. All of it.
The second option is to create something called a “testamentary trust” in your will. This requires special language in your will that creates a trust on your death. The conservator becomes a trustee.
The enhanced protection with a testamentary trust is that you can include language that requires the conservator/trustee to continue managing the money you left your child after they turn 18. You can, for example, spread distributions out over time so your child doesn’t receive a windfall at such a young age.
The downside to a testamentary trust is that your conservator/trustee will be required to report to the court and file an annual accounting until all money has been distributed to your child. This could continue on for many years and results in increased professional fees and places an additional burden on your conservator/trustee.
The third option is to create a Living Trust and transfer your property and life insurance policies to the trust. You can include in your trust whatever distribution schedule and other restrictions on your money you want in place so that your child does not receive a large sum all at once.
You choose the trustee of your trust. Again, the trustee can be the guardian or a different person.
The trust is administered completely outside of the court system, freeing your trustee from court supervision and annual filings. However, without court oversight, it now becomes more compelling to have a different individual serve as trustee than your legal guardian to eliminate the conflict of interest.
Let’s recap the financial side of naming a guardian for your child:
· At least name a conservator in your will to manage the money you leave your child until they are 18
· Consider incorporating a testamentary trust into your will to prevent your child from receiving a windfall at age 18
· Consider creating a Living Trust in addition to your will for greater flexibility, protection and administration of the money you leave your child outside of the court system
And consider our self-serving advice: do not try this at home. Hire a professional.
At EstateplanningUS we are always ready to assist you put the plan in place that is the right plan for your family. In fact, we have a special program that makes designating legal guardians affordable for every parent of young children.
We call this program My Guardian Angel Plan. Call or email us to find out how we have removed all obstacles for parents of young children to name a legal guardian.