Thinking about who would raise your child if something happened to you and your spouse is definitely not something anyone wants to think about. And, quite frankly, the likelihood that you and your spouse will both pass away while your child is still a minor is small. However, it can happen, and so it’s important to make decisions around who will ensure your child’s well-being in case of emergency.
When counseling clients about guardianship, I usually start off by informing them that guardianship is really a two-pronged role. The first role is that of the custodian – the person your children would live with and the person who would make day to day decisions about your child’s wellbeing. The second role is that of the money manager – the person, or financial institution, that would manage the assets you left behind for the benefit of your child.
Knowing that you can leave one role to care for your child and one role to care for the assets then allows you to figure out the best individual(s) for each job. First, let’s determine the right fit as custodial guardian, and then delve into the money manager role.
Here are the top 3 things to consider when choosing a custodial guardian:
1) Identify Parenting Style and Values
Losing a parent is traumatic, so when choosing a guardian, your first consideration should be around finding the right person to help ease your child’s transition. Think about someone who has the same parenting style, who shares the same values about things that are important to you. You may find that this individual(s) is not a family member, but rather a neighbor you are close with, or a family friend whose children regularly come over to play together. It’s important to think outside the family tree sometimes in order to find the right guardian.
2) Discuss Idea with Potential Guardian Beforehand
Trusting someone to care for your child is a huge honor, but it is also a huge burden. You don’t want your chosen guardian to be surprised that you picked them. Make sure that the person(s) you are thinking of naming are actually up for the job, and get their input. These are hard conversations to have, but the more planning that can be done, the easier the transition.
3) Consider the Importance of Age
For clients with very young children, we will often name the grandparents as the primary choice for guardian. If this is the case, I always recommend naming a backup, in the event that the grandparents become too elderly to take on the job. Once drafted, the goal is for your documents to be valid for years to come, so we try to plan for as many contingencies as we can. On the other hand, know that so long as you’re competent, you can always update your choice of guardian whenever circumstances change.
Here are the top 3 things to consider when choosing money manager:
1) Naming Your Custodial Guardian as Money Manager
If you trust that the custodial guardian also has the skills and the ability to manage your assets that are left behind for your child, then it may make sense for them to also serve as the money manager. If, on the other hand, your sister is great at caring for children, but not quite as capable with financial matters, then maybe your brother-in-law (who is also coincidentally a CPA) may be better suited for the job. If you are considering naming someone other than the custodial guardian as the money manager, you want to make sure that they have the type of relationship where they would work together to meet the common needs of your children.
2) Selecting an Individual vs. Financial Institution
If there is no one in your circle that you would trust to manage the money, or if your financial situation is a complicated one, using a third-party financial institution is always an option. A benefit of using a financial institution includes them being a neutral party who is familiar with managing assets in these types of situations. However, there is a cost involved for their services.
3) Determining Length of Time of Management
Custodial guardianship ends when your child is no longer a minor, which is around eighteen years old in most states. However, the money management can theoretically continue forever, although most parents envision a point where they would want their kids to take over the management for themselves. Think through how long you would want a third party managing the assets for your children, and come up with good back up alternatives in the event that your primary choice is unavailable.
Figuring out who would love and care for your children and who would make sure that that your hard earned wealth is managed responsibly are really hard topics. However, undoubtedly, you know best what is in the best interest of your child, and therefore you should make a plan which makes those wishes known. Without a plan, the court will make these decisions for you, and therefore having no plan is the worst plan of all.