Protecting Your Child

Protecting your child is the primary goal of every parent.  Our country took a collective pause with the recent sad passing of Dan Reeve, leaving Christopher and Dana Reeve's young son Will an orphan. Some solace can be obtained by trying to take a positive lesson from the tragedy. The lesson from this tragedy is to plan now to protect your children from potential problems. There are 5 key steps to take:

Complete An Emergency Child Medical Form: Complete an emergency child medical card. Your living will won't address your child's care if you are gone.

Appoint a Guardian: Sign a will and name a guardian. You need to designate a guardian to care for your child.  Be certain to name someone who will show sensitivity and understanding to raising your child. Consider where the guardian named resides. Will it be an advantage for your child to move to where the guardian lives to get a fresh start? Would it be preferable for your child to name perhaps your second choice who happens to live nearby so your child can maintain the same friends and school? Should this be a condition in your will? How well will the guardian work with the trustees (below)? Be careful to name several successors. Also, name one person at a time, not a couple. If you name a couple, what happens if they divorce? Should you tell the guardian of the appointment? If you don't what if they don't wish to serve, have a health or other impediment you weren't aware of? On the other hand, if you discuss the appointment with the agent, likely a close family member or friend, what happens if you later change your will to name another? Consider whether the guardian should be a co-trustee to have input. However, you may not want to have the guardian as the sole trustee as there would be no checks and balances.

Set up a Trust: Set up a trust to protect your child's assets. This can be done in your will so that should you die the assets bequeathed to your child will be managed for the child's benefit, and protected. If you plan to make significant gifts to the child while you are alive, it's probably advisable to set up a trust while you are alive to protect those assets as well. If you own or are planning on purchasing life insurance (see below) the insurance should generally be owned by a trust. Why a trust? A trust can provide management of assets through co-trustees and other fiduciaries, protection from claimants and divorce; tax benefits; and more. The trust document can set standards for distributions to assure your goals are achieved. You can also include reasonable personal directions in the trust to provide guidance to the trustees as to your goals. For example, you might authorize the trustee to fund an addition on the guardian's home, foreign travel, religious school education, extra-curricular activities, etc. Be careful how personal provisions are added, the language should be flexible enough to avoid binding a trustee if the child develops differently or circumstances change. If you set up a trust to benefit your spouse and children (a "family trust") is your intent to primarily benefit your spouse? Your children? Both? If you establish a trust just for only your child, the trend is to use long term, lifetime or even perpetual trusts, to provide protection for your child. Such a trust would likely provide that on your child's demise the assets would pass to the child's descendants (although the child may be given limited or even broad rights to direct the distribution of the trust assets). If the trust is really intended to benefit your child, then the trust should authorize the trustee to distribute money to or for the benefit of your child "without regard to remainder beneficiaries". That language is vital to the determination of investment and distribution decisions. If your child has drug, emotional or other issues, ignoring these realities won't help your child, they need to be addressed in the trust.

Buy Life Insurance: If your estate isn't large enough that the trust you fund will be assured of having sufficient resources for you child, evaluate supplementing with life insurance. Buying insurance to protect children, especially minor children is often a simple and inexpensive step. If your child is 6 a 20-year term policy should assure getting the child through college. A longer policy might be safer. Whether you opt for permanent coverage and other features is secondary to making sure that there are enough resources for your family if you die prematurely. The insurance should generally be purchased and held by a trust to assure that it is not in your estate, and that the proceeds won't be squandered. Insurance can achieve much more. If there are children from different marriages, or children with special needs, insurance can sometimes provide a mechanism to address these differences. For example, a late in life child may require funding for school and buying a home, something your older children have already received. Yet, if you divide assets unequally in your will, you worry of offending the older children. A separate life insurance policy, perhaps held by a trust, can provide the extra funding for your youngest child, while your will can continue to provide for equal division of other assets. Don't forget disability coverage.

Write a Letter of Instruction: There are a myriad of personal decisions you need to communicate that are inappropriate to put into a legal document. One client aptly referred to this as the "two tissue box" letter. What should your guardian's know when they are making decisions as to where your child should live. What types of decisions should the trustee make about helping the guardian defray costs that could benefit the guardian and your child? What types of education should the trustee fund? What type of lifestyle would you like for your child? What personal wishes?