It is important for you to plan for what will happen to your child if you and your spouse both pass away while your child is still young.  You can plan in your will for both your child’s physical care and his or her financial well being.

Your Child’s Physical Care

In your will you will name the person or persons who will be responsible for raising your child if both you and your spouse die before your child is 18 years of age. This person is called your child’s "guardian.”

Being a guardian is a weighty responsibility.  To properly select a guardian, you need to think about who shares your values and would do the best job bringing up your child the way you would like to have it done.  Clients usually consider their parents first, depending on how young and fit their parents may be.  Then they often think about whether any of their siblings might make a good substitute parent for their child.  As you consider these possibilities, if no candidates surface, you will then need to consider if you have any friends who would be willing and able.  It is a good idea to name your first choice and then name at least one alternate choice, in case your first choice cannot be the guardian.

Of course, once you make your selection, you need to get the permission of the folks you want to name.  When you are choosing a friend, sometimes you can agree to do the same for them if the need arises.

Another thing you need to plan for as a parent of a young child is what will happen if you become incapacitated and can no longer think and talk for yourself.  The question is who will give instructions to your child’s doctor.  Your own health care power of attorney gives your attorney-in-fact the authority to make medical decisions for you but you also have the option of naming someone who will make decisions for your minor child.

Your Child’s Financial Care

Even if you do not have a will and you and your spouse both die, all your assets will go to your child.  However since a minor cannot own assets, if you have not planned ahead in your will, someone will have to bring a lawsuit in court to petition to be appointed the guardian of your child’s estate.  Often that will be a self-selected family member.  The guardian will have to get a bond, will have to file an inventory of assets with the court and get court approval for everything the guardian does on behalf of the child. 

This is an expensive process because it involves so much court supervision, but it goes from bad to worse because the guardianship only lasts until your child is 18 years of age.  You do not need too wild an imagination to think about all the mischief and trouble an 18-year old can get into if he suddenly receives a large inheritance. 

You can avoid this problem by creating a trust in your will that holds your child’s inheritance, if you die before you want him to inherit.  Your child’s inheritance can stay in trust for however long you feel is appropriate.  Typically, when I am helping clients, we start distribution of principal from the trust at around 25 years of age, figuring that until then the trustee will be applying the funds to pay for the child’s education.  Often, we structure the trust so the child gets half of the trust principal at 25 years of age.  We anticipate the child may make mistakes in investing or spending it, but will learn from those mistakes.  The child can then receive the second half at, say, 30 years of age and hopefully have a better understanding of what he needs to do to preserve the rest of his inheritance.  

 Selecting Your Child’s Trustee

While the trustee is in charge of the trust, the trustee will make distributions for the benefit of the child, and exercise the trustee’s good sense to determine the child’s needs.  The trust does not have to be court supervised and thus a trust is not nearly as expensive as a guardianship of the estate for the child.  You do need to think through who would make a good trustee.  If there are sufficient assets I strongly urge my clients to use a bank trust department rather than a family member as trustee.  This is because being a trustee is a lot of work.  A trustee has to keep accurate records of assets and expenditures.  The trustee has to pay bills for the child and file a tax return for the trust.  The trustee will be personally liable if the trustee does not invest the trust assets in a fiducially sound manner.

One reason many of my clients think first of a family member when they are thinking of a possible trustee is because a family member will have the "personal touch”, because they know and care about the child. 

That is a valid concern, but one way to obtain the professionalism of a trust department and still keep family involved in the process is to give a trusted family member the ability to change the bank trustee if the family member does not like what the trust department is doing for any reason.  Also, you can require the bank trustee to consult with the family member about decisions on how the trust money should be used to benefit the child.  In this way, you get the professional skill of the bank trust department and the "personal touch” of having a family member or friend being in control of the trustee.

Conclusion