As a new parent, I never could have imagined how much my world would change. I found myself wondering what I did with all of that time before now and why my social circle seemed like the only thing smaller than the adorable tiny socks I that seemed to find everywhere around the house. There were also the surprising adult conversations that dominated my interests with other parents. You know all of the is this normal type stuff and what do you when…? But perhaps one of the most striking is that once we had a child we were suddenly considered an option for guardianship of our friend’s and family’s children should they both predecease their children and we had to figure out where our baby boy would go if something happened to us!
The purpose of this article is to give you a basic survival guide as parents choosing a guardian for your minor children or being asked to serve as guardian for someone else’s child(ren). It is designed not only to be the very thing I wish my wife and I had read before launching into this decision, but the kind of article I wish our friends and family had access to before reaching out to us!
We will answer some basic FAQs about how this works, discuss the types of guardians, offer up a checklist of things to consider, discuss basic financial considerations (after all kids aren’t free), and also talk about the etiquette of having this conversation.
– with Jessica M. Warren of Warren and Lewis, PC
What is a guardian and how are they appointed?
A Guardian is an individual who has been legally appointed by a court to make decisions for a person who has been declared incompetent. Any person who is under the age of 18 is legally incompetent in the eyes of the law. When a minor’s natural parent is not available to make decisions for a minor child or to manage the minor child’s assets, the court can appoint a legal guardian for the minor. Texas law allows the parent of a minor child to nominate a guardian or guardians with the use of a form entitled: Declaration of Appointment Guardian for a Minor Child.
Why do I need to appoint one, and what happens if I do not make a decision?
If it becomes necessary to appoint a Guardian and neither of the minor’s parents has appointed a Guardian, then the court will select the Guardian. Usually, the first person to step up and file an Application with the court is appointed to serve as the minor’s Guardian. If the application is challenged or if more than one person applies for Guardianship, then the court makes a decision based upon the best interests of the child.
What are the two types of guardians and how do they differ?
There are two types of guardians: guardian of the estate, and guardian of the person. The guardian of the estate manages the minor child’s assets and pays bills, subject to review and approval by the court. As an estate planning attorney, I always recommend to my clients that they prepare to avoid a guardianship of the estate. The same goals can be accomplished with some basic and inexpensive trust planning that works better because we can plan for greater investment flexibility, it can reduce income taxes for certain assets such as retirement accounts, and the parent can have greater say in how the money is spent for the child.
The guardian of the person makes all other decisions for the minor child’s well-being, including where the minor lives and goes to school. The guardian of the person may also consent to medical treatment for the minor. You may nominate the same person to serve as both guardian of the person and guardian of the estate, or you may appoint two different individuals. If you choose to have the assets in a trust, rather than a guardianship, then you would select a trustee instead of a guardian of the estate.
If you complete a Declaration of Appointment Guardian for a Minor Child as part of my estate plan, can other family members dispute this?
Family members can dispute a parent’s selection and the court will carefully review all of the evidence. Generally, a court favors the parent’s choice and will not substitute its judgment for that of the parent; however, if it can be shown that the parent’s choice of a guardian is not in the best interests of the child, then the court will appoint the parent’s alternate guardian. If there are no other alternate guardians, then the court can appoint someone who was not nominated by the parent. Some successful challenges involve situations where it can be shown that the minor child is at risk of harm from the nominated guardian. This may mean that the nominated guardian has mental health issues, a history of abusing children, or is otherwise unsuitable to serve.
What happens at age 18?
The guardianship of a minor child ends when the child turns 18. The guardian has a reasonable period of time after the child’s 18th birthday, to wrap up the guardianship by submitting paperwork to the court to ask to have the guardianship closed. For a guardianship of the estate, the guardian is required to provide a final accounting to the court and child before turning the assets over to the child and this account is reviewed and approved by the court.
Selecting the guardian of the person:
- How well does your child know the person?
- Will they have to move to a new city, school, and will family and friends who have been in the child’s life be nearby and able to visit?
- Would the lifestyle with the new guardian be drastically different?
Selecting the: Guardian of the estate or Trustee-Additional considerations
- Does the person above have reliable money management skills?
- Do they, their partner, or children have debts or risky behaviors that might affect their ability manage the money?
- Does your guardian of the person feel comfortable managing the assets that will be left behind for your child(ren)’s benefit or do they need assistance?
- Will the guardian or trustee delegate some of these duties to a financial professional?
Core expenses include the additional cost of housing, food, transportation, clothing, healthcare, childcare, education, and miscellaneous expenses, to take care of your child(ren). The Department of Agriculture recently released numbers of what these expenses are estimated to be. I am going to summarize the average expenditures by income level, but if you are curious to see more detail you can view the full report here.
Before Tax Income
Estimated annual expenditures on a child by married-couple families, urban South, 2015
In addition, Jessica Warren says legal fees should also be factored into the cost. The legal fees and expenses vary widely depending upon the facts and circumstances of each case, but even for a very basic guardianship of the estate, legal fees and expenses are likely to cost an extra $2,000 - $2,500 per year. That could be up to $45k or more over 18 years. Of course, much of this expense may be avoided with good trust planning.
It is important to note that these fee estimates are only until age 18. There are going to be lots of expenses beyond age 18 such as higher education, transportation, down payment on a house assistance, wedding assistance, and general living expenses that are beyond the scope of this article, but will be discussed in a future collaborative article. For now, it is important to note that any money left over with the guardian of the estate is the child’s once they turn 18 and they can spend it as they see fit. If you prefer that the money for the minor remain protected longer, then trust planning becomes even more important.
You are probably going to fall into one of two camps when you think about the amount of assets that would be available to pay for these costs. If you look at your home equity, investments, retirement plans, cash on hand, vehicles, life insurance proceeds, and other assets and subtract out any debts that may need to be paid off to close your estate you can estimate how much money might be available for their support.
You may find that it is sufficient or even much more than what would be needed. This might be a good time to talk to your estate attorney about how these assets would be left for your children’s benefit. You may not want them to have full access to a sizeable pot of money the day they turn 18.
If on the other hand you find that your estate might not be big enough and you might end up saddling your new guardian with unintended financial challenges consider talking to your financial advisor and/or insurance agent about a life insurance policy to bridge the gap. Term insurance can be a great low cost bridge, if you are healthy, to cover the time between now and when your children could be financially independent. If you are not in good health and a life insurance policy is not an option a financial advisor can help you consider other alternatives or make plans to decrease debts and increase assets. There are some products which offer market exposure and a death benefit with no medical underwriting which could make sense in a situation like this.
If you are being approached you need to know what these costs are, what expectations are being made of you as far as lifestyle of the child(ren) you may be taking on one day, and the kinds of arrangements they have made to make sure these costs are taken care of. This is just as much a part of your financial strategy now as anything else and talking about this beforehand can make sure there are no surprises if the worst happens. They are asking you to take on the monumental responsibility of raising their child and it is not too much to consider asking them to purchase a small life insurance policy if the assets would be insufficient, to pay an attorney to help draft proper documents, or to have another party be the financial guardian if the assets are simply more than you are comfortable being responsible for.
Now that you have considered all of these things and you know who your choice would be for your child’s guardian and are able to articulate your wishes and take the financial burden of the decision off of their shoulders, you are ready to have the big talk. Let’s talk about a few things you can do to take the stress out of the conversation and make it a positive experience.
1.) Meet in person, you need to be able to read facial expressions. If something is uncertain or uncomfortable you may not be able to tell that over the phone. Forking it up for a nice meal away from the kids may help them know you appreciate the gravity of this decision and offer something to do if either you need a minute to process information and to make sure you are all free from distraction (like kids). Besides you may not want to discuss this part of everything in front of your children.
2.) Give them a heads up that this is what you want to talk about and give them a gracious way out if they need to decline. You don’t know everything that is going on in people’s lives and this is something that should be ideally entered into with an open heart. If you are being asked make sure you keep in mind how much of an honor it is that this person would consider entrusting their most cherished thing in the world to you (their children).
3.) Send them this article so they can wrap their heads around the questions they may want to discuss and feel prepared for the meeting. Be up front about the money, don’t make them ask. You don’t have to be specific to the dollar, but let them know you have assets that are designed to cover the costs of the things you discuss as being important to you child(ren) and how that will be left (i.e. in trust, outright, or under the supervision of a guardian of the estate). If you are being asked be up front yet polite about the financial considerations. You may send them this article and let them know these are things you are thinking about and would like to discuss.
Guardianship of someone else’s child(ren) is a huge responsibility. There are a lot of factors to consider such as who would make a good guardian, are they willing and able, how they could afford to handle the additional financial aspects, and how to actually have the conversation in way that is comfortable, open, and respectful.
I hope that this article gives you a basic understanding of the things you should be considering in making this decision. Remember to consult your estate attorney as they will actually draft your documents and can offer guidance through all of these and many other considerations. Your financial advisor can help you understand the financial aspect of these decisions and make sure you are not putting yourself at risk without knowing it in accepting a potential guardianship role or to make sure you are going to be able to provide for your children without being a financial burden to a new guardian.
Lino, M., Kuczynski, K., Rodriguez, N., and Schap, T. (2017). Expenditures on Children by Families, 2015. Miscellaneous
Source: Current annual college cost figures are obtained from Peterson’s. The college costs may include tuition, room and board, and books and expenses as reported by Peterson’s. Copyright © 2017 Peterson’s, a Nelnet Company, and its licenses. All rights reserved.
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This article was co-written by Jessica Warren with Warren and Lewis, PC in Austin, TX and Brendan Pheasant CFP®, AIF®, ChFC, CPFA - Financial Advisor
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