How Does an Estate Plan Protect Your Children?
If you are a parent, protecting your children is one of the most critical jobs.
We protect them by baby-proofing our house when they are toddlers. We hold their hands and keep them close when we go to busy places. We teach them to look both ways before crossing the road. In fact, there is an entire industry dedicated to providing products to help protect your children! There are: outlet covers, baby gates, sun-shades for the beach, floaties for the pool, bike helmets — the list goes on.
We protect our children because we think about the possible worst-case scenarios that our children might find themselves in. We spend countless hours thinking about how to keep them safe while they are still growing and learning.
But do we spend enough time (or any time at all) thinking about the worst-case scenarios that we, as parents, might find ourselves in? How will you protect your children when you can no longer do it yourself?
As an estate planning attorney, I advise parents on the different “products” available to them to protect their children when they are no longer able to. While many of the "products" I recommend truly depend on a family's individual circumstances, everybody can take some general steps to protect their children.
Here are my 3 recommendations that you can do now to protect your minor children if a worst-case scenario happens to you.
Put in place a will and name a guardian in that will
If you read my post on naming a guardian (here), you will remember that when you name a guardian, you are ensuring that it is you who chooses that person instead of the court. The "product" you use to name your guardian is a will. A will allows you to clearly communicate who you want to be your child's guardian in a way that will be accepted by the law. In fact, you can even include why that person is important to you in your will.
Create a separate document to name a standby guardian
You might think: wait a second, I just named a guardian in my will! Won't that guardian take care of my children if something happens to me?
The answer is — not necessarily! A guardian and a standby guardian serve different purposes. The guardian named in your will is only considered once you've passed away. Once you can no longer care for your children because you have died, this person will assume parental rights and take legal guardianship.
A standby guardian will allow you to transfer guardianship for a short period. This is needed if something happens to you that makes it difficult or impossible for you to provide care for your children, but you are still alive. A standby guardian will assume parental responsibilities for a limited time while you are still alive. This means that they will not take care of your children when you can manage those needs again.
A standby guardian is named with a separate document from your will. Your standby guardian can take this document to court for approval whenever that worst-case situation happens. This will move through the process more quickly and can protect your children when you are still living, but unable to care for them.
In the state of Illinois this person is called a standby guardian. Other states may have a different name for this type of guardian. Make sure you check with an attorney who is licensed in your state for the requirements to name someone who can serve in this role.
Create a trust
There are a few different ways to set up a trust; however, at its core a trust will give you the following two benefits.
You get to choose who manages any money you want to leave your children
Whether you are leaving your children $10,000 or $1,000,000 (or even more with your life insurance policy), a trust ensures that the person who is making the decisions about your money is someone you choose. This person does not have to be the same as the guardian.
If you do not have a trust in place, any money left to your children will be placed in an account that is managed for their benefit. The court will appoint someone to manage that account and disburse the funds for the benefit of the children.
You have no idea who the court will choose, so you also have no idea how they will manage the money they are given to raise your children. Whoever this person is may have to report to the court and provide information about how they are spending these funds until the child reaches adulthood. This creates an additional burden on whoever is taking care of your children.
Having a trust in place will significantly reduce the amount of monitoring of funds that the courts require.
You get to choose how any money left to your children will be used
A trust will also allow you to include how you want that money used. For instance, if you want the money used for educational purposes, medical purposes, shelter, you can indicate that in the trust.
You can also stipulate when your child receives that money. Without a trust, your children will receive any money left to them at age 18. Do you want them to receive everything you leave to them on their 18th birthday? Or do you want that money managed by someone else until your child achieves some goal (such as graduating college, completing a technical program, or once they reach a certain age)?
A trust allows you to choose how the money you are leaving to your children is used.
Types of Trusts
There are two types of trusts to consider using.
Testamentary Trust – this type of trust is defined in your will but is not established until after you have passed away
Revocable Living Trust – this type of trust is created while you’re still alive and you maintain complete control over it until you are no longer able to manage your own affairs
The big difference between a testamentary trust and a living trust is that you will add an additional layer of privacy with a living trust. This may or may not be important to you.
You might think: I’m going to be dead. I don’t really care about privacy because I am no longer alive and no longer care about my privacy. This is a valid point!
But let’s consider what a lack of privacy means for your children. The example that I give my clients is this:
Suppose you’ve created a testamentary trust in your will. Everything your children receive from you will be part of the public record.
This could mean that your children receiving any type of inheritance are more likely to become targeted by someone who may take advantage of them. Unfortunately, these people exist.
If your children receive their inheritance in their early adulthood, they may or may not have the life experience to navigate through this type of issue. Using a revocable trust will give you peace of mind knowing that you will be able to provide a level of privacy protection for your children.
Sum It Up
Parents are constantly thinking about worst-case scenarios their young children could find themselves in so that they can protect them from these situations. Rarely do parents think about the worst-case scenarios we might find ourselves in and how this will affect our children. If you become incapacitated and can longer care for your children, even if for a short period…
How will you protect them?
I hope you found this information helpful and informative! If you did, I’d love to hear from you! Leave a comment or send me a quick email to let me know that i t was helpful! Make sure to subscribe so you don’t miss more important topics!
I’ll talk to you soon!
Jayme
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