Estate Planning for Parents with Minor Children

As elder law attorneys, much of our time and energy is devoted towards older clients and their families as someone is transitioning into long-term care in an assisted living facility or skilled nursing facility.  We also frequently perform estate planning for younger clients, including the parents of minor children.  In this blog post we explain some of the key features of estate planning for parents of minor children including naming both a testamentary and a standby guardian, choosing the right Trustees, and ensuring that life insurance policy beneficiary designations dovetail with your estate planning.  We also address special considerations for divorced parents and parents of children with special needs.

One of the primary reasons why clients with young children pursue estate planning is to name a testamentary guardian for their minor children.  “Testamentary” simply means that something is part of a Will.    If both parents of a minor child are deceased, the testamentary guardian named in a Will is first in line to petition the local probate court to serve as guardian of the minor child or children.

Because a Will does not speak until after the person who made the Will is deceased, many states (including Georgia) allow a parent to name a Standby Guardian.   Under Georgia law, when custodial parents have completed a Designation of Standby Guardian form, the Standby Guardian is empowered to have custody and control of minor children for up to four months.  At the four month mark, a Standby Guardian is first in line to petition for guardianship of the minor children until the child is 18 years old.

Many of our younger clients with minor children don’t have large piles of cash to ensure that all of their spouse or partner’s needs and their minor children’s needs are met if the client dies prematurely.  As anyone who sells life insurance will gladly tell you, this is one common situation in which having life insurance is so important.   Most young parents who come to us have life insurance.  Many, however, have not done the math about how much money it might take to pay off a mortgage, help raise one or more children, and (perhaps most expensively) help to put one or more children through college in the event that one parent dies.   Having a sufficient amount of life insurance is especially important for single parents or couples where one spouse or partner is the chief breadwinner, such that if he or she were to die prematurely there would be tremendous financial pressure on the surviving parent, who might not otherwise be able to meet these large financial responsibilities.  (Here, we should point out that for $40-$60 each month, most parents in their 20s to 40s can purchase at least $250,000 or more in term life insurance.)  There are many formulas that can be used to determine how much life insurance you should have, but rather than rely upon any formulaic approach (such as 8 to 10 times your annual salary), we counsel clients that it needs to be enough money to meet these needs: paying off any remaining mortgage, and leaving enough to help with a child’s expenses from where they are now all the way through their potential college tuition.

We routinely counsel our clients to name their spouse or partner as the primary beneficiary of their life insurance policy, and this is exactly what most clients have already done.  However, many clients are surprised to learn that we often recommend that clients name their estate as the secondary beneficiary of their estate.  Doing so ensures that if a client’s spouse or partner is not alive to receive the life insurance policy proceeds, there will be money to fund the bequests (gifts) in their Will for their children and other beneficiaries.

We won’t go into all of the details of disability insurance, but we will note that most of us are far more likely to have a disabling event during our work life than we are to die prematurely.  If you can afford to purchase a quality disability insurance policy, either on your own or through your employer, you will be able to replace lost income (usually 60% of your income) in the event of disability.  Good disability insurance is typically not cheap, but if and when you need it, you will be glad you have it!

We sometimes hear from younger clients with minor children that they know that one particular friend or family member would be a great choice as a standby or testamentary guardian, but that the parents think that someone else is a better choice to manage the money left for their children.   In this situation, we counsel parents of minor children that they can absolutely name different individuals to serve as guardians and as trustees.  Guardians are responsible for the health and safety of minor children.  In contrast,Trustees have “power of the purse” in that they are responsible for administering the terms of a trust (here, testamentary trusts in the parents’ Wills that leave money for their children and for others.)  If you are the parent of a minor child, you will generally know if you want the same person to have both physical care and custody of any children and make financial decisions, or whether you prefer a “checks and balances” approach in which you name different individuals for these roles.

Parents of young children have a wide array of opinions about when their children should receive any money from their estate- and whether that distribution should be based upon age, educational achievement (such as graduating from a four year college), Trustee discretion, or all of the above.  Here, there is no “one size fits all” solution for each family, so we discuss the options and help our clients decide the best fit for them.

Last but not least, we must highlight two groups of parents whose planning needs require even more attention to detail.  The first group consists of parents who are divorced from the other parent of their minor children.  In planning for this group, we must sometimes explain that if anything happens to them, the terms of the divorce decree will largely dictate the rights of the other parent to raise their child.  If a parent has custodial or visitation rights, those rights do not suddenly disappear when the ex-spouse dies or becomes disabled.  On the contrary, it is in such a situation that (as our clients often do not want to hear), their ex-spouse is almost always first in line to care for their child.  Likewise, if a divorce decree requires that a client maintain a life insurance policy payable to their ex-spouse in the event of their death, we are going to check with our client to ensure that such a policy is being maintained, and that any decree requirements about the beneficiary are being met.

The second group of parents whose planning needs require more attention to detail are parents of children with special needs.  Here, we reassure all of our clients that precisely because none of us can predict what the future will hold, we now include a contingent testamentary Special Needs Trust in every Will that we draft.  In plain English, this means that any beneficiary of any Will with such a contingent Special Needs Trust who is receiving Supplemental Security Income (SSI), Medicaid, food stamps, subsidized housing, or other means-tested government benefits will not be disqualified from their benefits because they receive an inheritance.  Rather, their inheritance will be placed in a Special Needs Trust that allows their inheritance to be used for their benefit.  Significantly, Special Needs Trusts are subject to annual scrutiny by the State of Georgia’s Department of Community Health, and must abide by strict standards about how the money is spent for the sole benefit of the beneficiary on allowed expenses.