Dear Liza , My partner and I have each executed our wills, naming the person to be legally responsible for our minor son (age 12) and indicating that our assets would flow first to one another, then to our son in the event of our deaths. We assumed that the person we have named guardian for our son would have control over these funds, but recently learned that may not be the case. The person we have named guardian is not a blood relative, and there are blood relatives living who may not want the guardianship responsibility, but want to control the funds. Also, we would not want our son to have access to all the funds upon attaining age 18, but would want funds to be able to be spent for college expenses, etc. We completely trust the guardian named to make the right decisions, but need to know how to best make this happen from a legal perspective. You, like any parent, have two different problems to solve. The first is, “Who is the best person to raise my son to age 18?” The second is what’s the best way to manage the money my son will inherit and who is right person to take care of that money?” Nominating a guardian of your son in your Will solves problem number one. To solve problem number two, you need your Will to establish a trust for your son, to hold his money until he’s older, say 25 or 30, and name a Trustee of that trust to manage the money until that time. The alternative is to name a guardian of the estate, this person would manage the money for your son, but only until age 18, when he becomes a legal adult. You can certainly name the same person to both roles, many people do. But, if the best person to raise your son would spend his college money on a pony, naming someone else is a better choice.
Category Archives: Guardianship
Dear Liza: Do you have any recommendations on naming children as secondary beneficiaries for life insurance/investments? Why, as a matter of fact, I do! If your children are minors (under 18 in most states), your estate plan should establish some way of managing money for them until they are old enough to handle money responsibly. This is usually accomplished by creating a trust for them until a certain age, say twenty-seven. Until then, you would name a trustee to manage and distribute the child’s assets for them; after that, the money’s theirs to manage and invest. If you have created a living trust, you would name that trust as the beneficiary for your life insurance and the secondary beneficiary for your retirement accounts — that way, the money will be available to your children, but be managed by your trustee.
You can instead use a Will as your main estate planning document and your Will can set up exactly the same structure of a trust for children managed by a trustee until the children reach a certain age. However, if you use a Will, your estate will go through probate BEFORE the trust for the kids can be funded (don’t worry, the kids will have access to your estate during the probate process). Think of this as two roads to the same place — one road (the living trust) just gets you there faster.
If, however, you name minor children directly as beneficiaries on those forms, and you die while they are still minors, a guardian of the estate will have to appointed to manage these assets, and, when a child reaches the age of 18, they money will be all theirs.
If your children are adults, you can and should name them directly. It makes it easier for them to deal with these assets after your death and there are special advantages to doing this with respect to retirement accounts.
Dear Liza: My father just died. He left his Roth IRA to ten family members, thrilled to be leaving us with a long-term retirement investment. But two of the beneficiaries are under 18, and our credit union is saying that the minors can’t keep the Roth IRA, but have to cash out their shares and open custodial accounts. That’s not what my Dad would have wanted. Are they right? Yes, most likely. Here’s the deal: a minor can inherit property, but under state law, minors can’t control that property until they’re legal adults. In California, where I practice, a minor cannot own more than $5,000 without some form of legal control and management by an adult, like a property guardianship, a custodial account, or a trust for that minor’s benefit. A property guardian is appointed by the court, and may be a child’s parent or any person nominated by the parent. The guardianship terminates when the child becomes a legal adult — 18 in my state, but this varies by state law as well. So, check with your credit union to see if they’d permit you to keep those accounts under a property guardianship to age 18. If so, it may be worth it to you get yourself appointed as property guardian. Alternatively, cash those accounts out, open up a custodial account at the credit union, and don’t let those kids touch that money. When the custodial accounts end (25 in my state; varies by state law), make them open up IRA’s with the money because that was your father’s wish. You can’t legally require that they do so, but you can make them feel really, really guilty if they don’t.
Dear Liza: My husband and I just can’t seem to get around to writing a Will because we can’t decide who to name as a guardian for our two young children. I don’t like his sister’s husband; he isn’t comfortable with the city where my sister lives. My mother is perfect for right now, but we are worried that she will be too old ten years from now, when she’s 75 and our daughter is 15. We know we should do something, but we don’t know what to do. Any ideas? So, here’s the deal: you are right, you SHOULD do something. And, actually, it sounds like you do know what to do. If right now your mother is the perfect person to be the guardian, get that Will done, and name your mother. You can revisit this in 3 -5 years, and, trust me, you most likely will anyway. It’s a much better idea to have a Will in place, even if it isn’t going to be perfect forever, than to have nothing written down at all.