Selecting the Guardian for a Minor Child

Who would you like to be the guardians of your young children if you pass away?

Nothing will stop a good financial, estate, or life insurance plan dead in its tracks quicker than the following question: “Who would you like to be the guardians of your young children if you pass away?”

Squealing brakes. Usually, the parents just look at each other with terror and confusion. In many ways, it's an overwhelming thought and the ultimate conversation stopper. This is where parents really need help from their advisors. Few couples can think through this alone and if they try, they simply stop planning. As a result, they leave their children — the most important thing in the world to them — at risk. No judge in the world wants to appoint a guardian for a minor child; they would rather have the decision made before the case gets before them.

The “least evil” guardian. Parents usually procrastinate choosing a guardian because they're looking for the best one. Considering that parenting is usually a mix of elation, love, guilt, and self-loathing, all at the same time, it's hard to find someone who would be ideal to replace you. Where will you find someone who'll love your children like Mother Theresa would, while investing like Warren Buffett? The answer, of course, is that you never will.

The first thing we suggest is to divide the responsibilities. First, choose someone to raise the children (the guardian). Then, select someone else to invest the money (the trustee). The guardian's job is to raise the children until they reach 18. Once they reach this age, the children, in theory, are adult enough to make their own decisions.

But how do you choose among all the different candidates? The best guardian is the “least evil” one. This is the person among all your client's family and friends, who would never live up to the ideal standards of Mother Theresa and Warren Buffet, but would raise young children better than anyone else.

Benefits of a trust. The trustee can be a family member, or an independent third party like a trust company. Its job is to manage the investments for the children. It's important to remember that, while the children are adults at age 18, a trust can be structured to last longer than the children's lifetimes. This provides a tremendous amount of flexibility to parents when considering how to leave money to their offspring. They don't need to give a lump sum distribution at age 18. A trust, therefore, is the preferred estate planning tool in many cases.

But it also begs the question, “Who should be the trustee - the “Warren Buffett” - for the kids?” Who is that special person who can profitably invest money for your heirs with a long-term perspective? It's a crucial decision.

Naming a Guardian for Your Children: Six Common Mistakes

If you have named guardians for their kids, you may have made one of these six common mistakes:

You may have named a couple to act as guardians, but you have not indicated what should happen if the couple broke up or one of the spouses died. This means your kids could end up in the care of someone you did not choose.

You may not have named enough alternates to serve if your first choice cannot serve.

You may have considered financial resources of potential guardians when deciding who should raise your children. Your guardians do not have to also be financial decision-makers for your kids; your guardians are the people who will be in charge of your kids' emotional, spiritual and physical well-being – not necessarily their money. It's your responsibility to leave enough money behind to take care of your kids, either through savings or life insurance. You can name someone other than your guardians to take care of that money if the best-choice guardians are not good with money.

You may have not provided for someone to take care of the money you are leaving behind. That means your money could go outright to your kids at 18 – unprotected.

You probably named only long-term care guardians and did not make any arrangements for the short-term care of your kids if you were in an accident. This means your kids could be taken out of your home and into the care of strangers until the authorities could figure out what to do.

You probably did not exclude anyone who might challenge your decisions or who you know you would never want raising your kids.

The good news: Avoiding these mistakes is easy when you have the right guidance.