In our April 2016 issue of MoneySense, we introduced you to Shannon Jarrett, 37, and her partner Marcin Duran, 34. They’re trying to track their money, come up with shared goals and cash in bad habits. Throughout the year we’ll be giving them a financial challenge every month to help them get her finances in tip top shape. Make sure to follow along! Their last challenge had them reading Stop Over-Thinking Your Money!: The Five Simple Rules of Financial Success, by Preet Banerjee.
What Shannon had to say
After reading Stop Over-Thinking Your Money!, by Preet Banerjee, a couple of key things came to mind: First, that I really need to look into our life insurance coverage. How much life insurance do we have through work and what does that cover? Is that enough? My thinking is that if our house is paid off (which we aim to do as quickly as possible) then we’ll be okay. If there was more money in the household budget every month, I’d probably get a 10-year term policy or 20-year term policy. I’m still going to research this and check out what’s available.
It was also great to find out that a will only costs about $400. I have backed away from drawing one up as I have always been scared of the HUGE legal fees I thought would come along with this. I really would get a will now that I know it’s affordable but the problem is, we have no one in the family who would be up to the rigorous job of being guardians for our children. I also don’t know who would have access to the kids’ finances so this poses more problems for me. So, I don’t feel ready to draw up a will yet, but I know the will HAS to be done, but it likely won’t be this year—maybe next. I’ll pray nothing happens in the meantime.
What the expert says
“Not making a decision is a decision,” says Rona Birenbaum. “If Shannon and Marcin both die without a will, someone in their sphere of friends or family will be able to apply for guardianship to the courts. And unless that person was really, really incompetent, they’d likely get guardianship of Shannon and Marcin’s two kids.”
Birenbaum goes on to explain that, in general, if there is no guardian or trustee named in a will, a public guardian (or government-appointed trustee) takes over. “Shannon and Marcin need a will to prevent that, if that’s their wish,” says Birenbaum. As well, any family member can apply to manage the money in the estate for the kids and they would have a good chance of getting the money because, Birenbaum explains, “the government isn’t keen on performing this function themselves.” To avoid any problems, the couple should do the following.
Appoint a professional trustee to disperse the money.
To make sure their wishes are adhered to, Marcin and Shannon should choose a professional trustee to manage their money if both of them pass away. “This is what banks do in their trust divisions,” says Birenbaum. The couple should go to their local bank and inquire about the trust division. If they decide to go this route, they should name their bank’s trust division in their will as the party who would handle all monetary transactions for their two children. This would mean that the trustee would have to be consulted whenever the children’s guardian needs money for them—likely several times a year. “The children’s guardian would apply to the trustee for money as needed,” says Birenbaum. “So for instance, if the guardian needed to renovate a room to accommodate the child, they would go to the trustee for the money. They’d also go a couple of times a year to get a budgeted amount of money to cover food, clothes, education and other incidentals for the kids.”
Appoint a guardian.
Because the courts like to keep kids with a family member, even without a will, if a family member stands up to take the kids, they will likely be granted custody. But if absolutely no guardian steps forward, “then the children will go into the foster care system.”
That’s why Birenbaum recommends that the couple specifically name the people they do not want to be guardians of their kids right in their will. Then, they should look for a family friend who could be good guardians for the kids. “If I was a friend and they were asking me to be guardian to their kids in the will, I’d want to make sure there was enough money in a trust to care for the kids,” says Birenbaum. “Most people just want to know that enough money will be there for the children if they need it and really, any person whose asked to be a guardian should make this request.”
To ensure that there’s money in the trust to raise the kids if they both die, Shannon and Marcin should purchase a joint 20-year term life policy with a death benefit of $1 million. The annual premium (because they’re smokers) would be $2,350. They may be able to get this coverage for less if they go through their employer’s benefit program but the downside is that if the person with the insurance gets laid off, they will be left without coverage. “Having a good term life insurance policy in place as well as a solid will are both well worth the money,” says Birenbaum. “They need to make it a budgeting priority.”
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