Protecting Your Child

Protecting Your Child

By: Martin M. Shenkman, CPA, MBA, JD

Protecting one’s child is the primary goal of every parent. Our country took a collective pause with the recent sad passing of Dana 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 — Plan now to protect your children. There are 5 key steps:

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. See for a sample form.

Appoint a Guardian: Sign a will and name a guardian. You need to designate a guardian for your child. Name someone who will show sensitivity and understanding to raising your child. Consider where the guardian resides. Will it be an advantage for your child to move to where the guardian lives? Would it be better to name someone who lives nearby so your child can maintain the same friends and remain in the same school? Be careful to name several successors. Also, name individuals, and not couples as guardians. If you name a couple, what happens if they divorce? Should you tell the guardian of the appointment? If you do not tell him or her, what if he or she does not wish to serve, or has an impediment you were not aware of? But if you do discuss the appointment, what happens if you change your will? 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, and protected for the child’s benefit. If you plan to make significant gifts to the child while you are alive, it is 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 that personal provisions are flexible enough to avoid binding a trustee if the child develops differently or circumstances change. If you establish a trust just for 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. If the trust is to benefit your child, then it should authorize the trustee to distribute money “without regard to remainder beneficiaries”. That language is vital to the determination of investment and distribution decisions.

Buy Life Insurance: If your estate isn’t large enough to be assured of having sufficient resources for your child, supplement with life insurance. Buying insurance to protect children is often simple and inexpensive. 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 by a trust to assure that it is not in your estate, and that the proceeds won’t be squandered. If there are children from different marriages, or children with special needs, insurance can address these differences. For example, a young child may require funding for school that your older children received. Yet, if you divide assets unequally in your will, you worry of offending the older children. A separate life insurance policy can provide the extra funding for your youngest child without offending the other children.

Write a Letter of Instruction: There are a myriad of personal decisions to communicate that should not be in your documents. One client aptly referred to this as the “two tissue box” letter. What should your guardians 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?

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