By Robert W. LaBre, J.D.

“So how do we help finance the guardianship if we both die before our children have?”

The young, married couple came back for a second appointment to plan their estate in the event of death. This portion of the interview regarded planning for the event that both of them died before their four children reached age 18. They both decided they wanted to appoint the husband’s brother as the primary guardian over their children. If the husband’s brother wouldn’t or couldn’t perform as guardian, the secondary appointment listed the wife’s sister.

The issue now was how they could help pay for the guardianship after they both were gone.

“First, is it important to both of you that you help pay for the guardianship?” I asked.

“After all, you don’t have to pay for the guardianship through the estate if you don’t want to. If your siblings are volunteering and don’t mind paying for your children’s upbringing, you could reserve the distribution of your entire estate until your children have reached a certain age.”

“No, we both want to help finance the guardianship through our estate,” the wife said. “We don’t think the guardian should be required to pay entirely out of pocket for raising our children.”

The husband nodded his affirmation.

“Well, there’s multiple avenues we can approach this issue,” I said.  “Social Security provides benefits for orphans depending upon whether a laundry list of requirements are  met. In addition, if either of you are veterans of the United States military, Veterans Affairs may also provide benefits for your children.”

“Have either of you worked for at least 10 years?” I asked.

“Are either of you veterans?” I asked.

Again, both nodded their heads no.

“We both graduated from college only five years ago,” the husband said.

“That takes the VA off the table as a viable option for benefits to your children.

And, for now, Social Security orphans’ benefits isn’t available either, but it could in the future. That said, I’d recommend that a Testamentary Trust be drafted into your Will. You can finance the trust with your life insurance policy, and any or all other property from your estate.”

“What’s a Testamentary Trust?” The husband asked.

“You know that a trust places money or property into the hands of a third person. That trustee has a duty to use the money or property for the purposes stated in the trust, and also for the beneficiaries who are listed in the trust, right?”

Ordinary people, too

“Yes,” the husband said. “But I thought trusts were only good for multimillionaires, who want to avoid paying taxes and creditors.”

Chuckling, I said, “They have been used for those purposes, but they can also be used to pay for your children’s health, maintenance, education and support after you’re gone. Unlike an inter vivos trust, which places your property into a trust while you’re alive, a testamentary trust places property into a trust only after your death.

“In circumstances such as yours, I usually recommend that the trustee responsible for the money funding the Testamentary Trust also be the guardian, but they don’t have to be the same.”

“Why do you recommend that the guardian and trustee be the same person?”

“To avoid power struggles,” I replied. “If the guardian is different from the trustee, then the guardian may have to periodically request funds from the trustee. If the trustee says no, for whatever reason, then the only way the guardian can receive the money requested is to petition the court. By making the same person hold both rolls, you avoid this potential problem.

A matter of trust

“But that requires you to have complete trust in the person chosen,” I went on to say. “When a family member holds such responsibility without much supervision, it’s not that uncommon for him or her to spend the money intended for your children on themselves. That said, a lot of people prefer to separate the two entities between two people: the guardian for the person they trust to properly raise their children, and the trustee for the person they trust to properly handle and distribute the money intended for their children.”

“Looks like we have a lot to think about,” the wife said.