Imagine the following scenario, you are the parents of three children, a boy age 17 and two girls, ages 9 and 12. You have been meaning to attend to certain legal and financial issues regarding your family such as establishing a last will and testament. You may feel secure if you and your spouse have life insurance through your employer that amounts to around $500,000 in death benefit when either of you die, and you named as beneficiary each of your children in equal amounts (per stirpes).
Here is a summary of the worst case scenario in the event that both you and your spouse predecease your children before they reach the age of majority (which is 18 in in the United States). Your assets will not automatically pass to your three children if they are under the age of majority at the time of both of your deaths. What is worse is because no individual was appointed guardian of the children, a court would appoint what is known as a guardian ad litem to represent the best interests of the children.
Issues Arising From the Death of a Parent with Minor Children
As you can see, failure to address the issue of a will while alive forces the hand of the state to take action and appoint an individual to look after your children. Questions will arise from this scenario about the financial status of the estate left behind by the demise of you and your spouse.
When the joint deaths occurred (and we will set aside for a moment the issue of who died first) and no will was left behind, you are said to have died intestate, or without a will or a set of written instructions that determine the disposition of your estate, guardianship of the children, and settlement of your affairs. This invokes the involvement of the probate court to fix these matters, a process which could take some time. Consider the size of your estate and how likely it may be to cause disputes among members of your surviving family (i.e. parents, siblings, grandparents, etc.).
Simultaneous Death or Death Caused by a Common Disaster
Now back to the issue of who dies first. Under what is known as the Uniform Simultaneous Death Act, insurance contracts have what is known as the common disaster clause. If you and your wife were involved in an accident that resulted in your deaths, the determination (in the absence of clear evidence to the contrary) would be that you predeceased your spouse, meaning the proceeds of the insurance would go to your estate, not hers. Regardless of the relationship you have with the children you are raising from another marriage or her children from another marriage, if she were the primary beneficiary the proceeds would pass to her at the time of death.
What Can Be Done?
There is a common myth that estate planning is something only for wealthy people and a will is not necessary if there are not a lot of assets to distribute. If you own a home, participate in a retirement savings account like a 401(k) plan, and have money in the bank, you need to protect those assets for your surviving children in the event that simultaneous deaths were to occur. The effort to plan for the protection of your children and their financial interests cannot take place if you and your spouse are no longer around to protect them.
This article was written by Robert Tritter, an aspiring lawyer who looks forward to helping you understand legal issues better. He recommends taking a look at the finance jobs with moneyjobs.com if you’re interested in a career in finance. Check out their website today and see how they can help you!
