1. You Must Legally Document Who Should Raise Your Kids.
It is so important to designate in writing exactly who you want to care for your children if something happens to you. If you don’t do this, your children could be raised by someone you would never choose! Maybe you know who you would want to raise your kids and they’ve even agreed. Maybe you’ve even told your family and friends, but haven’t documented it. This is a recipe for disaster and in the next paragraph you will see why.
Not too long ago, there was a couple living in Newport Beach, CA. They were the parents of two young children (5 and 7). One night, the couple went out to dinner and a movie and left their children with their neighborhood sitter. They left the sitter their cell phone numbers and asked her to call if there were any problems with the kids. In a sad twist of events, mom and dad were struck by a drunk driver who came across the median, killing them instantly. When the police discovered where they lived by looking at the husband’s driver’s license, they saw that there were pictures of small children.
The police drove to their home where they found the babysitter waiting up for the parents and the children fast asleep in bed. The police asked the sitter for a phone number of a relative or close friend and she could produce neither. Because the police did not know who to contact to give temporary custody, the children were taken into Child Protective Services for the evening until it could be determined where to place them. When the husband’s sister discovered that her brother and sister-in-law had been killed in the accident, she immediately tried to obtain custody of the children.
However, there were other family members that wanted the children as well. She knew that it was her brother and sister-in-law’s wishes that she raise the children if anything were to happen to them but there was no documentation to that effect. Further, there was no estate plan in place to finance the care and raising of their children.
The deceased parents’ estate went through a long expensive probate and the aunt racked up thousands of dollars in legal fees fighting for permanent custody of the children. When all was said and done and she finally got permanent custody, she was nearly bankrupt. This tragedy could have been easily avoided. They could have designated in writing exactly who they wanted to care for their children temporarily and for the long term with a Guardianship Nomination document. And it’s important that this be done properly. A lot of times people say things like, “I want my brother Tom and sister-in-law Jane.” But when we ask questions, such as, “Well, do you really want Tom and Jane both as your designated guardians? What if Tom died or Tom and Jane got divorced? Do you really want Jane as a legal guardian or do you really just want Tom to be their guardian?” So it’s important that you designate in writing exactly who you want to care for your children and that you give clarity to this.
2. Make Sure Your Children Are Never Raised By the One Person You Know You DON’T Want.
Do you know what’s as important as documenting who you do want to care for your children? It’s who you DON’T want to care for your children. This is an often-overlooked step because it can be such a sensitive issue. But, if there’s someone in your family you know you would never want to raise your children, don’t you want to do everything you can to prevent that from happening? Clearly designate in writing anyone you know you would never want to care for your children if something happens to you. This reduces the risk of that happening. This is a document that never needs to be discussed or revealed unless absolutely necessary, so you don’t need to worry about hurting anyone’s feelings. You can have the absolute peace of mind of knowing that your children will never be raised by that one person you would never select. In my office, we keep this document in our files and will produce it in court if the person you specified tries to obtain custody of your children.
3. Provide Financial Resources to Protect Your Children.
As a parent, it’s your responsibility to provide enough financial resources to make sure that whoever is raising your children will not struggle financially. Unfortunately, I’ve seen what happens when parents think they’ve made adequate provisions, but their intentions are thwarted by insufficient planning. The plans they made are then
tied up in court for months. First, you need to have sufficient savings and investment resources to care for your children if you can’t be there or else you need to have life insurance, or some combination of both. Work with a trusted advisor to determine exactly how much insurance would be sufficient to support your family if something should happen to you. As a general rule of thumb, 10 times your annual salary for life insurance is what you should have at a minimum for a death benefit on a life insurance policy. And, you’ll have to consider what kind of insurance to purchase. Your attorney and financial advisor can help you make this important decision.
And, most importantly, make sure the financial resources you do leave for your children are totally protected by a trust. It is best to designate a trust as the beneficiary of your life insurance so it doesn’t get pulled into the court process or passed to your children at age 18. This will help make sure it is available when it is most needed. It also helps make sure the assets are managed properly for your children and protected from lawsuits, creditors and predators.
4. Protect Your Children’s Financial Well Being With Sub-Trusts
Within Your Revocable Living Trust.
By creating sub-trusts within your revocable living trust, you can make sure that the money you leave to your children is actually available for their care, is not mismanaged, and is asset protected. For example, in California, if you fail to designate a trust to hold your assets for your children, the court will appoint a guardian to handle the money until they reach age 18. The guardian may or may not be the person you would want handling your children’s finances. By creating sub-trusts, you can select a trustee of your choice to take charge of the finances, who can be, but doesn’t have to be, the same person as the physical guardian for your children. It’s best to designate a trust as the primary or secondary beneficiary of your life insurance and retirement accounts (with proper retirement account conduit provision language) so those funds don’t get pulled into the probate process. This will help make sure the money is available when it is needed most. It also helps make sure the assets are managed properly for your children and protected from lawsuits, creditors, predators, divorcing spouses and mismanagement.
5. Make Sure Your Estate Plan Covers Incapacity Planning.
Some of the issues we discussed above could be handled by executing a will. However, you need more than that to properly protect your family. A will governs what happens if you die, but does nothing if you become incapacitated. If you become incapacitated, your family would be faced with having to go to court to get permission to act on your behalf unless you execute the proper estate planning documents. Also, in California as in most states, a will still goes through the probate process, whereas a trust does not.
About Brenda Geiger, J.D.
Brenda is a Trusts & Estates Attorney with her primary office located in Carlsbad, California (she also has satellite offices in Costa Mesa and La Jolla). Brenda graduated from the University of San Diego School of Law where she served as an Editor on the San Diego International Law Journal and published a scholarly article in the Law Journal. Brenda is also a published author of many articles and 3 books on estate planning. The most recent book was released in June of 2009 entitled “Safeguarding the Nest” available at www.SafeguardTheNest.com. Her passion is helping families protect their children and keeping families out of the court process at incapacity and death. On a more personal note, Brenda is married to Len, the CEO of the San Diego based web hosting company WebIntellects, Inc. and they have two small children, Lenny and Taylor. They also have two dogs, Starsky and Semper (their lovable German Shepherds).
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