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?