by Brad Jenkins
Life is hectic. Dealing with jobs, friends, family, and everything else you have on your plate contributes to that rapid pace. When you add children to the mix, it doesn’t get any easier. At some point, we run out of time to accomplish everything on our to-do list. Eventually, every one of us will run out of time entirely. Before that happens, if you have children, there are some things you should consider.
Questions to Ask
What happens to your minor children? Have you provided the necessary assets to get them to a point of self-sufficiency? Who will look after those assets until they can do so for themselves? Most importantly, who will look after your children until they can do so for themselves?
These are all very important questions — and very personal ones. They are all questions that require more than just a passing thought that can and need to be addressed by you and your spouse as soon as you can.
Necessary Assets
Providing assets for your children has a simple solution: life insurance. Many people use term life insurance as a tool to create a legacy to replace any lost income earning ability and to provide for their family. You can work with an advisor to determine what amount is appropriate.
Looking after the assets and looking after the children involve a trustee and a guardian, respectively. Whom should you choose to fill each role? Should it be the same person or persons? Should it be a friend, a member of your family, or a member of your spouse’s family? As an example, I’ll describe how my family chose different trustees and guardians.
Trustees and Guardians
Both my family and my wife’s extended family live more than a few hours away from us, and from each other. We wanted to ensure the two families would be involved with each other and remain close to the children. With that in mind, we decided to name one member of my wife’s family as the guardian while appointing members of my family as trustees of the assets.
Many people wonder what might happen if the guardian and the trustee are the same person, and they ask, “Couldn’t they spend my assets on anything they want, including themselves?” The answer to that question is “yes.” However, if that is a lingering concern, there’s a follow-up question you should ask: “If you don’t trust the guardian with your money, why would you trust them with your children?”
More often than not, parents find their answer to that question is that while they do trust the guardians, they like the idea of taking any conflict of interest out of the equation.
To be clear, in our personal situation, we didn’t anticipate the guardian would do anything improper with the assets. Actually, our concern was quite the opposite. We were worried the guardian would do everything possible to avoid touching the assets, so the children would have more of a nest egg, even if that meant struggling financially. Our trustees have been encouraged to inform the guardians of our intentions — through the language in our documents and other written instructions from us — that they should use the assets to maintain a good quality of life.
An Action Plan
There are a few steps you should take after you’ve made these decisions, but before you have your trust and/or will drafted.
–First, make sure you ask those you wish to appoint as either trustee or guardian if they are willing and able to take on the great responsibility should the need arise. Do not list them on the documents without having this conversation.
–Second, make sure you have a contingency plan in case someone is unwilling or unable to fill the role. It makes a lot of sense to have in your documents a list of the people who will take on this role, after you’ve had the conversation with them.
–Finally, take the necessary time to discuss any provisions or restrictions you’d like your documents to include before consulting an attorney. By having this discussion ahead of time, you could possibly save some attorney fees down the road.
Perhaps the most important thing to keep in mind is that you can always amend your documents. This means it is critical for you to have something in place, even if it isn’t perfect. Personally, I’d rather make these big decisions now and be able to change my mind down the road, instead of letting a court make those decisions for me.
Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.