When we last heard from Jenna and Mark, they were clinging to one another, attempting to wait out Hurricane Astrid in a community center in St. Thomas, U.S. Virgin Islands.
The trip was Mark’s attempt to reignite the romance in their lives, after the birth of their third child, Mikey, five months prior. At age 30, they had thriving careers—Jenna as an attorney, Mark as a pediatrician—and two other children, Lola, age two, and Joey, age four.
By the time Astrid hit the Virgin Islands, it had developed into a Category Four hurricane. Terrified, the couple began to bemoan all they had left undone.
Jenna said, “Right now, I am kicking myself that I didn’t get our estate plan updated before we left. I mean, who will be able to support three young kids financially? Our parents are retired and living on fixed incomes. My sister, Geneva, has never met a penny she didn’t spend, and your brother, Karl, can handle only one child at best. He will farm the others off to your parents. Think of the disparity in those lifestyles. Neither Geneva nor Karl can raise our children the way we want them raised, I just know it.” She began to cry.
“What worries me most is what happens when those two discover there is no pot of gold at the end the rainbow,” Mark said. “With our student loans, and our new home, the only real asset we have to our name is life insurance. There is no way that the payout from those policies will support three children into adulthood. We should have increased our coverage.”
At that moment, the power failed and the hall was cast into darkness. The building shook, ceiling panels began to fall, and then the roof blew away. Jenna and Mark did not survive.
The parents of minor children have very specific estate planning needs:
- Support, and,
- Financial management
This is the fourth in our series of blogs addressing these issues. Each category requires careful consideration. For example, there may be relatives you would trust to raise your children, but not to manage related financial matters. And there may be people you feel would excel at handling financial matters for your children, but who would serve as poor role models. The decisions you make about these issues could have an impact on the future well-being of your minor children.
In today’s blog, we will address financial management. Generally, a financial manager is named by will or appointed by the probate court. The trick is identifying someone who has not only demonstrated the ability to manage the finances of others, but also their own. In some cases, the financial manager may be a guardian or family member, in others, it might be wise to appoint an independent third party—someone who will not be influenced by family members or heirs.
In all cases, the financial manager has a fiduciary responsibility to the minor children. That means it is their duty to act in the best interests of the child. Failure to do so could have legal and financial consequences.
The role of a financial manager includes:
- Creating a reasonable, long-term budget for the support of minor children. This includes taking into account the express wishes of the deceased parents and their lifestyle, as well as the financial means of the appointed guardian(s). For example, is the appointed guardian able to provide adequate housing for the minor children, or will a larger apartment/home be required? Who will pay for the additional living space? Will increased living expenses, such as utilities, clothing, and food, negatively impact the financial well-being of the guardian, requiring additional support? Finally, is there a disparity between the financial means of the guardian’s children and those of the minor children left without parents—a case of stepping into lesser or better circumstances? How will that disparity be addressed?
- Identifying potential sources of financial support. Typically, the primary source of support for unparented minor children comes from an irrevocable trust or the U.S. Social Security Administration’s survivor benefits program. Additional benefits may be available to the children of those employed by the State of California (CalPers) or a local county or city government, as well as state assistance programs, such as Medi-Cal or CalFresh (SNAP—The Supplemental Nutrition Assistance Program). Other benefits may be available through private employer-sponsored pension plans, life insurance, and savings and investment plans. It is important to ascertain which financial resources are earmarked for specific services, and which may be used for general financial support.
- Accessing financial support. It is the responsibility of the financial manager to apply for all relevant public assistance programs, and complete the necessary paperwork to access private financial resources. In addition, the financial manager will be required to work with appointed guardians and trustees to ensure funds are managed in the best interests of the minor children. In some cases, the financial manager may be responsible for investing or leveraging available resources, or providing oversight of such activities.
- Ensuring those monies are spent on behalf of the designated minor children. Any monies provided for the support of minor children must be used for those designated recipients. For example, even if a guardian has other minor children, he or she cannot use funds designated for a “ward” to benefit their own children. Guardians, as well as financial managers, may be required to report on the use of financial resources and provide relevant invoices and receipts. In addition, after a certain age, minors may be permitted to challenge the use of support funds, whether those funds were made available by will, trust, or other legal document.
- Performing recordkeeping chores. A financial manager is responsible for filing appropriate applications, reports, and updates as required, including reporting and paying taxes, and mediating expense disputes, verifying accountings, and confirming fund disbursements.
It is important to note that there is a distinct difference between the responsibilities of a guardian of minor children, the guardian of an estate on behalf of minor children, and the trustee of a support trust. While one person may serve in all three roles, at other times, it may be in the best interests of the children to separate those roles and delegate responsibility to the people who are most skilled at handling those specific tasks.