Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

SELECTING AND COMPENSATING A GUARDIAN FOR YOUR CHILDREN
(6/9/02)

One of the most overlooked elements in estate planning is the selection of, discussion with, and compensation of the guardian or guardians of minor children. Often, clients come to my office without having given this any thought at all. When they are asked who they want to designate as the guardian of their children, there is almost a knee jerk reaction and they designate a parent, brother or sister, or family friend without any thought of the consequences of their actions. We try to overcome this by asking our clients to fill out a detailed questionnaire in advance, but even this is not always successful.

Guardianship Issues

The first issue to be considered is does the person you have designated as the guardian of your children want this responsibility. Have you discussed it with him? Does the guardian share your philosophical, religious, societal, and political viewpoints? Is he overly harsh or overly lenient toward children? Does he have children of his own of a comparable age, or is there a great disparity in the ages of the children? Have you discussed with the proposed guardian what responsibilities this will entail? Unless and until you have some meaningful dialogue with the designated guardian, you really don't know if he or she (or they) is the right person for this role.

Often we forget, especially if we have very young children, that the person accepting this position of responsibility may be taking on a job that could last a decade or more. In one case several years ago, a young husband received a blood transfusion in a hospital overseas. The blood was tainted, and he came down with the HIV virus, which he then transmitted to his wife. They both contracted AIDS and found themselves with only a short time to live. They came to me to arrange for the guardianship of their young children aged 2 and 4. They were of modest means and realized they were going to be asking a potential guardian to accept responsibility for raising their children over the next fourteen to sixteen years at a minimum. Fortunately for them, they had a very dear friend who was financially well off and was willing to take these children under her wing and raise them without any additional compensation. Which leads me to my next point.

How Should A Guardian Be Compensated?

One of the holes I find in many estate plans is the failure to address how and if the guardian is to be paid. Many state statutes provide for guardian compensation, but they are usually based on the value of the children's assets and the amount of income they generate. This statutory compensation is quite small and isn't nearly enough to properly compensate the guardian for his or her added expenses.

If the will or trust doesn't specify how the guardian is to be compensated, the guardian either has to rely on the executor or trustee to provide needed funds, or must dig into his or her own pocket to cover these additional financial burdens.

Let me point out some of the issues that arise. Let's say we have a young couple with two children ages 2 and 4, such as in my example above. They ask their good friends who are equally young, with children of their own aged 5 and 7, if they will be willing to serve as guardians of their children. The friends readily accept. Then a tragic accident occurs and the parents are killed. Suddenly the good samaritans find themselves having to bring two more children into their small 3-bedroom home which is barely adequate for their own family. They also find themselves financially stressed, having barely enough financial means to feed this larger family with very little left over to cover any extracurricular expenses, such as music and dance lessons, sports equipment, and future educational opportunities. They were being good friends by agreeing to care for these children, but they never expected it to happen, and especially not so quickly. Without some financial assistance, their resources are going to be strained to the breaking point, but the decedents' wills do not provide any compensation for the guardians. Now they are confronted with a difficult question of their own. Do they take the children in and raise them as best they can, or do they decline to serve as guardians and force a probate court to select a successor guardian?

I Understand The Problem. How Do I Address It?

Estate planning professionals have focused on three possible ways of addressing this compensation issue, each of which has its own pros and cons.

The first recommendation is to provide in your will or trust for an annual fee, usually adjusted for inflation, to reimburse the guardians out-of-pocket expenses and to compensate them for the services they provide. Compensation will be discontinued once the guardians cease to serve. The advantage of such an arrangement is the guardians know in advance exactly how much money they will be receiving each year to help them care for the children. The problem, however, is that the guardians may not have sufficient funds of their own if they need to move into a larger home or purchase a larger vehicle. The annual fee is a good approach, but not a perfect one.

The second recommendation is to pay the guardian a lump sum when he or she accepts responsibility for raising the children. The advantage is that the guardians will have the funds available if they need to acquire larger housing, relocate to another area, obtain a larger car, or the like. The size of this lump sum payment is usually based on the age of the child or children at the death of the parent. The younger the child, the larger the lump sum payment to the guardian since he or she will be responsible for the child or children for a longer period of time.

An obvious disadvantage is that the guardian receives all the money up front and there isn't any way to recoup it if he or she then resigns or the child dies prematurely. In either of these instances, the guardian receives an unplanned windfall.

The final option is to give the guardian the right to live in your home and avoid the need to displace your children. This only works if you have a large home, the guardians are willing to displace themselves and relocate into your residence, and it will not be a hardship on the guardians' own children. For example, even though the guardians live in a much more modest home than yours, if it is in a different school district, they may not want to move their children and force them to start over in a new school.

An added problem is that this leasehold estate usually ends when the youngest child reaches the age of majority. This means the guardians have uprooted themselves for the benefit and convenience of your children, established a new lifestyle in your home, and then find themselves having to move again once the youngest child reaches age 18. Depending on the age of the guardians, this may not be a viable alternative. What happens in many instances is that the guardians rent out your residence and use the funds generated from the rental to help cover the additional expenses of raising your children. Next week we'll talk about some other issues you need to be concerned about.

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