Estate Planning Lawyer Mesa AZ

Estate Planning and Who Will Take Care of My Minor Children?

As parents, we are all concerned about who would take care of our young children if we were to die. For those who do not have large estates, life insurance is a useful tool that ensures your children will be taken care of financially. The cost of term insurance is generally very affordable.

While using life insurance to plan for the financial care of minor children is good, it is also incomplete. Parents often make the mistake of naming minor children as the contingent beneficiary of their life insurance policy after their spouse. To illustrate why this is a mistake, we should review a few examples.

Facts: Two couples have four children ages 8, 6, 3 and 1. Couple A did some planning with their financial advisor but thought preparing an estate plan was too daunting a task and too expensive. Couple B, in conjunction with their financial advisor, met with an attorney and drafted a comprehensive estate plan. While out on a date, both couples were involved in a car crash and passed away, leaving their four minor children.

Couple A: Couple A had no estate plan in place other than a life insurance policy for $250,000 for both Mom and Dad. Mom and Dad named their four children individually as equal beneficiaries on the life insurance policy. Thus, there was $500,000.00 left to care for the kids. However, Mom and Dad had neither a will nor a trust. Here are some of the problems that relatives ran into in attempting to care for the children.

1. Grandpa submitted claims on behalf of his grandchildren for the life insurance policies. The insurance company refused because Grandpa was not appointed as the conservator of the estate of the four minor children by the probate court.


2. Grandpa had to hire an attorney and spend $5,000 to file a petition to be appointed by the court as the Guardian and Conservator for each of the children. He was required by the court to post a bond of $100,000.00.


3. Grandpa petitioned the court to be appointed as guardian of the four children. Aunt Judy submitted an objection to Grandpa’s petition. Aunt Judy liked Grandpa, but was concerned that he was too old to care for four minor children and thought that they needed more motherly care. Grandpa thought he was better equipped to care for the older children and didn’t want to split up the kids. After spending an additional $14,000 in attorney’s fees and costs fighting Aunt Judy’s objection, Grandpa was appointed as the guardian of the two older children. After spending $15,000 in attorney’s fees and costs, Aunt Judy was appointed as guardian of the two younger children.


4. After being appointed as conservator, Grandpa submitted new claims to the life insurance company. A month later, the company paid out a benefit of $500,000.00. Aunt Judy and Grandpa’s attorneys’ fees and costs were paid out of the life insurance proceeds. The remaining funds were held in a restricted account.


5. Grandpa and Aunt Judy needed to buy new homes to have enough room to care for the children. Each sold their old home and spent $100,000.00 each of their own money to buy a new home. The court, would not allow them to use the children’s money to upgrade from their existing homes.


6. Every year after for the next eight years, Grandpa submitted a total of four accountings (one for each child) to the probate court, as required by law. Each year, Grandpa spent $2,000 for a CPA to prepare the accountings and $2,000.00 to his attorney to review the annual accountings. A few years, Aunt Judy found discrepancies in the amounts paid for the benefit of the younger children and objected in court to various items on the accountings. Her objection resulted in additional legal fees of $5,000.00.


7. Grandpa had to use the principal of the funds to pay for the daily living expenses of the children. Often, Grandpa and Aunt Judy used their personal funds to pay for their care. They typically spent several thousand per year of their own money.


8. By the time the oldest child needed to attend college, there was not enough money under conservatorship to pay for his tuition and living expenses while leaving a proportionate amount for the remaining three children. He ended up attending a community college and working part time to make ends meet.


9. The second child caused a car accident at age 16 and caused damage above what her insurance company would pay. The injured party found out that she had money in a conservatorship, sued Grandpa, and won a judgment. Her entire funds were lost in legal fees and paying off the judgment.


10. Grandpa was unable to pay for each child’s college or trade school. Each child graduated with significant student loan debt and the second child was unable to finish school.


11. When the oldest child turned 18, the house was sold and each child received a check for $20,000.00.

Without having an estate plan in place, Grandpa and Aunt Judy were left to guess what Couple A would have wanted. Couple A’s lack of planning resulted in disagreements and court involvement. Couple A’s poor planning cost their estate tens of thousands of dollars in legal fees they could have avoided by preparing a comprehensive estate plan for their children prior to their death. A much better outcome can be obtained doing what is illustrated in Couple B’s scenario.

Couple B: Mom and Dad created a revocable living trust and last will and testament. The trust provided that if both parents were to pass away, the $250,000 life insurance proceeds for both Mom and Dad should be paid into the trust, meaning the trust was the beneficiary of Mom and Dad’s life insurance policies. However sad it was that Mom and Dad passed away, they left $500,000 for their children who were all less than 10 years old. Mom and Dad named Grandpa as the successor trustee of their trust. They also nominated Aunt Judy as the guardian of their children in their last will and testament.

1. Grandpa spent $2,500 in attorney’s fees to help him administer the trust and submit the life insurance claims. Grandpa did not have to post a bond, and the court was never involved. Grandpa kept track of the trust funds, but never had to pay for a formal accounting.


2. The life insurance company paid $500,000 to the trust bank account Grandpa created with the help of his attorney.


3. Aunt Judy petitioned the court to be appointed as the guardian of the four children. She spent $5,000 for a petition to be appointed as the guardian of the four children and was reimbursed by Grandpa from the funds in the trust.


4. The trust indicated that Grandpa could use the funds for his grandchildren’s health, education, maintenance and support until they reached age 25. Grandpa reimbursed Aunt Judy for her groceries, home repairs, and paid for the kids’ sports, music lessons, summer trips, etc. out of the trust. The income earned by the trust was enough to pay for these expenses.


5. Grandpa approved a request from Aunt Judy to buy a larger home for Judy and the four children. Grandpa wrote a check to the escrow company for $200,000 to purchase the home in the name of the trust. Aunt Judy sold her old residence and lives in the home as her compensation for being guardian. She cared for the children until each went to college or trade school.


6. The second child caused a car accident at age 16 leaving damage above what her auto insurance company would pay. However, because she had no money until age 25 (the money belonged to the trust), the injured party decided not to file a lawsuit.


7. Grandpa paid cash for each of the child’s college or trade school tuition and normal living expenses totaling roughly $25,000 each. Each child attended and graduated from college or trade school. At age 25, Grandpa paid ½ of each child’s inheritance to the child, roughly $10,000. At age 30, Grandpa paid the remaining $10,000.00 to each child. Grandpa felt comfortable knowing that he carried out his son’s and daughter-in-law’s wishes because that is what the trust required.

It is amazing what a difference having a customized estate plan in place can do to provide peace of mind and care for your loved ones. Mom and Dad saved thousands of dollars in legal fees after their death by preparing a comprehensive estate plan for their children. Mom and Dad’s wishes were clearly written out, which provided peace of mind to Grandpa and Aunt Judy and made the care of the children much easier.

If you need legal advice about how to protect your family, give me a call at (480) 833-1113 to set up an appointment.