Considerations parents need to address for the sake of their kids
March 9, 2014
Thankfully, the natural order of things is that parents tend to die long after their children become adults, but, sometimes, it doesn’t work out that way. In the aftermath of the incapacity, death or disability of parents, legal arrangements will need to be made for the care of the minor children and, possibly, the management of their inheritance. Parents can help ease this process and protect their kids by thoughtful planning.
At a minimum, parents need to make a plan for the physical care of their children. Sometimes, this consideration doesn’t involve the disability or death of the parents. For example, the parents may need to entrust a child with a relative during a business trip. Perhaps the family is moving, and the parents have arranged for the oldest child to stay with a friend’s family to finish up high school.
Under these circumstances, Colorado law enables parents to temporarily delegate certain decision making authority to a third party. The parents may revoke or limit the scope of the delegated authority, and under law, a delegation of authority will be effective for no more than 12 months, but it can be renewed by the parents if necessary. Google “JDF 750” and “JDF 751” for forms and instructions for the delegation of parental responsibility, which are offered through the Colorado Judicial Branch website.
It’s important to understand that a delegation of parental authority will have no effect upon the death of the parent, when a legal guardianship must be established.
A parent can make a guardianship appointment in a will or other formal writing. I recommend that you use an attorney for this. In addition to minimizing the court procedures required to establish a legal guardianship by petition, if the parents proactively make the appointment, they can reduce the risk that there will be a dispute over who will take care of the kids.
If the parents fail to appoint a guardian, a petition for guardianship will need to be initiated in court by whomever volunteers to take custody. This petition will involve some relatively complex procedures, it can take weeks or months, and it can be expensive, all at a time when the family is dealing with a painful loss.
If a minor child inherits money, real property or other significant assets, a court proceeding called a conservatorship may be necessary for an adult to manage the property on behalf of the child. The conservator will hopefully be a responsible person who has the best interests of the child in mind. Like a guardianship, a conservatorship is a complex, time-consuming and expensive court action, and it is oftentimes an inferior means to administer a child’s inheritance. Fortunately, like a guardianship, a conservatorship can be avoided through formal estate planning.
A testamentary trust is considered to be the best mechanism to manage an inheritance for kids, even for modest estates. Importantly, even though the beneficiary designation of a life insurance policy, IRA, 401(k) or other qualified benefits, controls the disposition of the death benefits, a testamentary trust established by a will or revocable living trust may be designated as a beneficiary of the death benefit. If the parents fail to designate a trust as the beneficiary, the insurance provider or plan administrator will likely only distribute the death benefit after a conservatorship is established to receive the money, which as suggested above, is less than ideal.
The Colorado Uniform Transfers to Minors Act offers a less formal, but oftentimes appropriate, method for giving property to kids. The so-called “UTMA” is basically a statutory trust under which a custodian has a fiduciary obligation to manage the property for the child until he or she becomes an adult. The UTMA doesn’t enable the parents to craft specific instructions for the administration of the property or to extend administration past 21 years of age, but, despite its limitations, a UTMA custodianship can be very effective in certain situations.
Parents should never give or bequeath property directly to a friend or relative, free of trust or custodianship, on the understanding that they’ll take care of the kids. The friend or relative will be under no legal obligation to take care of the kids, who would theoretically be disinherited. Equally concerning is the fact that the creditors of the friend or relative (including a divorcing spouse) could go after the money.
Matthew Laurel Trinidad is a private attorney with Karp Neu Hanlon PC. His practice focuses on estate planning, probate and business law. He can be reached at firstname.lastname@example.org.