Choosing a Guardian for your Minor Children

Choosing a Guardian for your minor children is not an easy task.  In talking to friends, family and clients the primary reason for the delay in handling such an important affair is the simple fact that they struggle with deciding who to appoint.

Let's face it, the reality is, no one is going to be you.  It's hard to imagine anyone (other than you) would ever be good enough to raise your children. However, wouldn't it be better to at least have some control over this decision?  The only way to make sure your wishes are carried out is to execute a formal Guardianship either as a standalone document, or as part of your Will.  In Texas, you may appoint a single person as Guardian or a married couple as joint Guardians of your minor children.  The Court will uphold your choice of Guardian as long as it is in the best interests of your children and as long as the person chosen is not disqualified.  If you do not document your choices, then the Court will appoint a person to serve as Guardian of your children based on the guidelines set out in the Texas Estates Code. 

What should you consider when choosing a Guardian for your minor children?  There are no hard and fast rules, but when I discuss this issue with clients, I like to focus on several things:

1. First, does the person you wish to name share your same values?
2. Are they at an age that would allow them to care for your minor children now or ten years from now depending on how old your children are at the time?  
3. Do they have the financial means to support your minor children and if not, will you be able to make provisions for them in this area?  
4. Do your children have an existing relationship with this person?  
5. Will the transition to this person be the least disruptive choice for your children?
6. Is the person you are appointing willing to serve as Guardian of your children if the need arises?

Once you have chosen a Guardian and alternate Guardians, make sure you formalize this decision with the right legal documents.  Just like all of your other estate planning documents, you should review your choice of Guardian from time to time and at a minimum every five years.  

Four Documents Every College Student Needs

Many of you probably sent your children off to college this past fall. Before you left you stocked their refrigerators with food, made sure they had their books, health insurance card, transportation and their cell phone handy to call you in case of emergency.  What a lot of parents don't realize is if they do get that dreaded call from the hospital or need to access their child's bank account, they have no legal rights to do so unless the child has executed documents granting their parents these rights.  Every college student should have a minimum of four legal documents before they head out on their own:  1. Statutory Durable Power of Attorney. This document allows your child to designate an agent to act on their behalf in all financial matters.  This document may be executed so as to be effective immediately or only upon incapacity.  If your child has a financial account in his or her own name only, you as a parent will have no rights to access that account without this document.    2. Medical Power of Attorney. This document allows your child to appoint an agent to make medical decisions on their behalf if they are unable to make such decisions.  Typical decisions may include: operations, medication, procedures and life support (to the extent not addressed in the Living Will).  Your child may customize this document to meet any specific religious and/or philosophical beliefs that he or she may hold or to restrict the agent's decisions making power. 3. HIPAA Release.  In the event that your child becomes incapacitated, the HIPAA Release permits his or her doctors and other health care providers to provide the necessary information to enable the agents they designated in their Statutory Durable Power of Attorney and Medical Power of Attorney to begin acting on their behalf. The HIPAA Release is primarily meant to deal with recent legislative changes that prevent doctors and health care providers from disclosing personal and private health information to any third party without prior express consent.  4. Directive to Physicians and Family or Surrogates ("Living Will").  The purpose of the Living Will is to help your child communicate decisions about life-sustaining treatment.  It takes precedence over the Medical Power of Attorney.  This document may also be customized to meet specific religious and/or philosophical preferences/beliefs.  *For purposes of this article I am assuming a college student to be eighteen (18) years or older.

The Medicare Surtax

Most of us are aware of the new federal income tax and federal estate tax rates that were enacted this January and that took effect in 2013.  However, fewer are aware of the 3.8% Medicare Surtax on Net Investment Income ("NII") that was enacted as part of the Affordable Care Act.  This new Surtax applies to individuals, trusts and estates.  Whether this tax applies to you is based on two factors: 1) you meet certain minimum income level requirements; and 2) you have property that qualifies as NII.  

First, the Surtax only applies to individuals who meet the following Modified Adjusted Gross Income ("MAGI") levels: 1) Married filing jointly or Qualifying Widower with Dependent Child with MAGI greater than $250,000; 2) Married Couples filing separately with MAGI greater than $125,000; 3) Everyone else with MAGI greater than $200,000.  Once you determine that you meet these threshold income levels, then the analysis becomes whether you have property that meets the definition of NII.  The IRS provides the following examples, which are not exclusive, of property that it considers NII: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of Internal Revenue Code ("IRC") Section 469). Excluded from NII are: retirement plan distributions, compensation income/salary, income on the exercise of compensatory options, and vesting of restricted stock.  Note, however, that these types of income are taken into account for MAGI, which could ultimately trigger the Surtax.  If you determine that you meet one of the MAGI thresholds and you have NII, then you may be subject to the Medicare Surtax.  For a married couple filing jointly with MAGI over $250,000, they will be taxed 3.8% on their NII.  For example, if the couple had $200,000 in salaries and $150,000 of NII for a total MAGI of $350,000, then $100,000 would be subject to the 3.8% surtax.  It is critical to understand if the Medicaid Surtax applies to you it is a surtax in every sense of the word -- meaning it is in addition to any income tax liability that has been assessed under other provisions of the IRC.

 

IRS Website - MAGI Computation

IRS Website - NII

*The computation of MAGI and application of the surtax to trusts and estates is not discussed herein.