As parents, we try to make sure our children are safe – wear helmets when riding your bike, don’t talk to strangers, etc., etc. We also try to protect their financial future with life insurance, and hopefully savings for college. But when tragedy strikes, are your minor children legally protected?
Who will be their guardian? Will the guardian have access to life insurance proceeds? Will all the assets have to go through probate? Will the funds be protected from teenage caprice?
Choosing their Guardian
With no surviving parents, the court will need to appoint an adult as a legal guardian. You can nominate your choice of guardian in your will. You should also discuss your decision with family and particularly the potential guardian’s ahead of time. This advanced planning and discussion can save a lot of argument and grief later.
Access to Life Insurance Proceeds and Retirement Benefits
Often the simplest thing to do when completing your life insurance or retirement benefits is to name your spouse or child directly. This is a huge mistake when you have minor children, because life insurance companies can’t write their check to a minor. They need to write a check to a guardian. But if you designate someone as trustee of the funds for your children’s benefit under your trust, the life insurance check can be sent right away, and your chosen trustee will be able to manage the funds based on the terms of the trust you created.
Preventing the Probate of Your Estate
In California any estate with a gross (not net) value of over $150,000 has to go through probate, a time consuming and potentially expensive process. To avoid the delay and expense of probate, your assets should be placed inside a revocable living trust. With a properly funding living trust, your successor trustee will be able to immediately step into your shoes and make the necessary decisions. Without a trust in place, the guardian will have to first obtain court permission to take over the bank accounts, pay the bills, the mortgage, and deal with the innumerable things that you deal with regularly.
Protecting your Teen from Him or Herself
A guardian can only manage the funds up until the child reaches legal adulthood, currently age 18. How many 18 year olds do you know that are ready to manage several hundred thousand dollars? The way to avoid giving your teen the ability to destroy their lives in short order is to place the funds inside a trust. With a trust, you choose someone trustworthy to manage the funds for the child’s benefit. A trustee can manage the funds for the purposes you designate and spend them in the manner you choose for the length of time you choose.
As parents, we have the opportunity to make some important choices for our children’s benefit. Choosing not to choose leaves them at risk.