Planning for Minor Children in the Event of Incapacity or Death

When we think about drafting a will or even a trust, we usually think about who gets what, when, and how. There is no doubt that where our hard-earned property goes when we die or become incapacitated is critically important. But for those with minor children in their care, there are perhaps even bigger questions that our death or incapacity can give rise to. Principally, these questions are:

“Who will care for my children or the minor children in my care?”, and

“What will happen to the property I leave them until they are old enough to receive it?”

These two issues are the basis for two terms many of us have heard of before, “Guardianship” and “Conservatorship.” This article will explain the disadvantages of both as well as the mechanisms one can use to avoid them.

Guardianship and the Need to Avoid It

If a person with minor children dies or becomes incapacitated, his or her spouse will automatically retain custody of the children. However, if both parents die or become incapacitated and they have made no legal indication as to who should care for the children, those children will become wards of the state and a court will step in and make that decision for them. 

There is no guarantee—and in fact it is very unlikely—that a judge who has no personal knowledge of a child or the child’s family will appoint a guardian that the deceased or incapacitated parent would have wanted. Our values, religion, or plans for our children may well be disregarded by a court that has no knowledge of them and no interest in securing them. This is why the need to nominate a guardian is so important. 

3 Steps to Avoid Court-Appointed Guardianship

Step 1: Discuss with Your Spouse

While the above information should motivate many people to take the simple steps to avoid a guardianship, it tends to have the opposite effect. Many become paralyzed by this difficult decision and the thorny personal matters it can bring up and end up putting off a pressing—and incredibly simple-to-solve—problem. If this sounds like it could happen to you, it may help to remember that while the person your spouse has in mind may not, in your mind, be perfect, it is certainly better than the one the court will appoint and the process involved in that appointment.

Step 2: Discuss with the Intended Guardian

Quite naturally, you should discuss with your intended guardian your desire that he or she serve in that capacity in the event of your death or incapacity.

Step 3: Talk to your Attorney about Drafting a Will or Trust

A will can contain a provision appointing a guardian. If you have specific ways that you would like funds left to your child spent on his or her upbringing (more on this below), a trust will serve this function much better by creating trustees with legal duties to distribute the funds at the intended times for the intended reasons. Those trustees may be the very same person that you appointed guardian or could be separate.

Conservatorship and the Need to Avoid It

Whereas guardianship involves protecting a minor’s person, conservatorship involves protecting his or her inheritance. A minor has a special legal status. For instance, a minor cannot enter into a contract or hold accounts, nor can a he or she own assets. Therefore, a minor cannot receive an outright inheritance. 

Those seeking to leaving assets to their minor children need to think about this: what will happen to those assets in the years prior to their adulthood? In the event assets are left outright to a minor, the court will appoint a conservator to manage the assets until the child is 18. The conservator is charged with holding the assets, protecting them and distributing them as necessary. Much like the court-appointed guardianship, the conservator will not necessarily be the person the deceased desires. Furthermore, the process is costly and time consuming, and conservators are limited in the way they can invest the assets and distribute them. Having a will is certainly better than not having one, however a will alone will not avoid conservatorship in the event one dies or becomes incapacitated before their heirs reach the age of majority.

2 Ways to Avoid Court-Appointed Conservatorship

Option 1: An UTMA Account

The Uniform Transfers to Minors Act (UTMA) allows you to create an account during your life and place assets in it. A custodian then holds those assets for the benefit of a minor and has a fiduciary relationship by which they are bound to adhere to certain rules of management and distribution. An UTMA account is advantageous in that it is very simple to set up.

There are drawbacks to such an account, however. First, they are limited in length. In Arizona and Texas, that age can be as no earlier than 18 and no later than 21. In California, it can be extended to 25. However, one may not want their heirs to receive at such a young age; this is a disadvantage of an UTMA account. Another drawback is that UTMA funds cannot be used by a guardian of a minor child for normal expenses including food, shelter, or medical bills. If the guardian experiences financial hardship, they cannot use UTMA funds to help pay the rent for the house they are using to shelter the child, the food bills incurred in feeding him or her, or even the cost of a medical expense. Finally, UTMA accounts cannot be modified, they are final and cannot be taken back at any point.

Option 2: A Trust

The main alternative to an UTMA account is to leave assets to the young person in a trust. In a trust, the grantor dictates the terms as to when the child would receive and in what amounts and the terms under which they can be withdrawn. Much unlike an UTMA account, a trust—depending on how it is written—can be modified and those funds can be taken out and allocated elsewhere depending on changing circumstances.

This article hopefully has alerted the reader who cares for young children—whether their own kids or their grandchildren who they care for—that estate planning goes beyond simply leaving property to our loved ones. While that is of course, an important element of estate planning, it is not the whole picture. Making the proper plans to avoid conservatorship and guardianship is an important consideration that people who care for young children must plan for.