With Father's Day approaching, fathers and mothers alike should use that greeting card holiday a reminder to look out for their children well into the future.
A will is a big part of those future plans.
"While everyone needs a will to settle money matters, there's a far more compelling reason to have one if you have kids," says Melinda Kibler, Certified Financial Planner and portfolio manager with Palisades Hudson Financial Group's Fort Lauderdale, Fla. office. "Naming a trustworthy, caring guardian for your children is one of the most important things you can do."
As Kibler notes, the lack of a will can create problems if both you and your spouse or partner die, or if you're a single parent. If your child or children have a living biological parent who does not have custody, she also notes that courts will almost always give custody to that individual if he or she comes forward. If you've remarried and started a family with someone else, however, that can result in separating siblings.
Meanwhile, if you have remarried and your current partner hasn't formally adopted your children, there is no guarantee that your partner will get custody. Instead, children may go grandparents, aunts, uncles, or even into foster care, depending on the court and on the state's laws.
"In the absence of a will, the court may create messy custody battles or award custody to a family member who may not have volunteered to raise your children," she says.
The lack of a will might also mean that you're leaving your children not only with no idea of how they'll be looked after financially, but with someone who isn't fiscally responsible if you do leave assets for then. Kim Dula, a partner at Marlton, N.J.-based Friedman LLP notes that a will clarifies your intentions and protects your family from both creditors and their own spending habits -- but only if it's in place.
"The biggest thing that I see repeatedly, though, beyond people who don't have a will, is people who don't revisit them," Dula says. "Maybe they have that will created when they're very young, but that will has to be revisited as your family grows, as your career grows as your assets grow and as tax laws change. It's an investment in their family's financial future and well-being."
According to a survey by Caring.com, just 56% of American parents have a will or living trust document. Roughly 27% have made no plans for their estate whatsoever and 16% of their kids are unsure whether their parents have made preparations or not. Only 25% of adult children have asked if their parents have left a will, while just 40% of parents say they've updated that will within the last five years.
If 52% of adult children don't know where their parents store their estate documents and 58% don't know the contents of the documents, exactly how do you think actual children are going to fare if there isn't a will in place?
"It's time-consuming, it can be costly and it creates an incredible amount of stress for the family you've left behind," Dula says. "The surviving family is already going through such a trying time with the death of a loved one and now dealing with all of this creates a lot of confusion and can be very painful. To prevent that and put this all in place when somebody is healthy and competent, it's a nice thing to do and it's an investment that everyone should be considering."
Granted, no every asset requires a will. Non-probate assets such as a 401(k) plan or life insurance plan only require a designated beneficiary to make sure those assets go to the right places and stay away from creditors. Jointly owned property typically just goes directly to the next person on the title, but a will or trust document can still help if any of those assets have a minor as their designated beneficiary.
Palmer Williams, national sales director with Saybrus Partners, partners with financial advisors to provide life insurance options for clients. He notes that you'll always want to make sure the right people receive the right assets in the right manner with the least amount of cost. However, if a child is named on a life insurance policy, Williams says it's always advisable to consider a trust.
"We try to encourage financial advisors to simplify the discussion," Williams says. "With a life insurance policy, if your beneficiary is a minor child and there's not a trust set up, your'e often left with the conservatorship process through the state that can be burdensome and inflexible."
That conservatorship requires the state account for a child's care. Unfortunately, that ends when a child is 18 or 19 and rest of that insurance money goes immediately to the beneficiary afterward. If you place that policy in a trust, however, it can determine when a child receives that money and how much they receive either at once or over a period of time.
With all other assets, you can't leave them to your children directly until they turn 18. Until that point, either you or a probate court will have to appoint a guardian to oversee both your child and the assets you're leaving behind. In this case, Kibler recommends creating a trust for the benefit of your children that will keep the assets out of probate court in a way that a simple will can't. You can also appoint a trustee who isn't necessarily your child's guardian.
"This lets you appoint someone with greater financial savvy than the person you chose to raise your children," she says.
You'll also have to appoint a successor trustee in case the primary can no longer manage or invest the trust's assets, handle distributions for your child's benefit or complete administrative duties including recordkeeping and taxes. You can also consider a co-trustee such as a financial advisor or accountant, which is a bit more costly. In any case, you'll want someone who's adequately flexible or strict and you'll want to make sure that the trust adequately covers the costs of a child's education, health care and other basic needs. That trustee can also oversee your child's 529 college savings plan.
While that person may be able to give your child financial stability, however, don't expect that they'll be able to fill the role of guardian as well. You may have some idea of who is close enough to you -- both personally and geographically -- to take care of your children, but preparing a will offers the opportunity to ask tough questions before it is too late. Does that guardian's ideologies and parenting philosophy line up with yours? Do they have the time and money to raise a child in your absence?
"Think carefully about who will provide your children with a loving, stable home," Kibler says. "If you are raising children with a partner or share custody with someone else, you should have a serious conversation about who you want as a guardian in case something happens to both of you."
You should also have a conversation with that potential guardian to make sure they are on board with it. An adult child may not be mature enough to handles those duties. Grandparents, meanwhile, may not be in adequate health to take on the task. Also, consider hiring an attorney to look into whether or not the guardian you've selected will pass muster and that your will is legal and valid.
Finally, if you've named a guardian in your will, Kibler notes that enclosing a detailed letter of instruction to that guardian will help on many levels. By spelling out your children's medical history , special dietary needs, items of emotional significance (photographs, blankets, toys, etc.) and updating it each year, you can provide some final comfort for both your children and the person you've appointed to watch over them.
"The guardian will be grieving your loss as well, and may or may not already be particularly close to your children," she says. "Your letter might include advice for helping your children cope with their grief."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.