Many parents of young children are so fixated on coming up with a plan to provide for their children's college educations that they are ignoring the more immediate concern of making provisions for their offspring if some calamity would befall the parents before the children even get to college age. That is the concern of Peter and Paul Gennuso of Gennuso Financial Group in Oak Brook.
"It is swell that they are thinking about college, but you can plan for college. You cannot plan for a personal disaster," explained Peter, a certified financial planner. "So you have to put an estate plan in place to make sure that your minor children will be cared for if the unexpected should happen."
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"Life issues are the things that cause the greatest disruptions, so they are the most important to consider. Financial issues, while important, can usually be resolved," he added.
Planning responsibly for the care of your family needs to include three elements, according to Peter. First, take care of the guardianship issues. Second, put in place financial tools to manage your wealth through retirement and to take care of your children. Third, provide the necessary capital to take care of your survivors by purchasing a well- structured life insurance policy.
"Children are a gift, but they are also a significant responsibility. So, you need to use your resources to put together the best plan possible," Peter said.
For instance, "if you have not made provisions and named a guardian and successor guardians, the courts will decide who will raise your children," warned Paul, an attorney and president of the group. "And they certainly can't place them with a family member that they might not even know exists."
Even if you name a particular person as your children's guardian, the court can disregard those wishes if the person is deemed unfit, but that seldom happens, he said.
"This is an important choice that parents should not take lightly. They also need to decide if they want one person to care for the children and another to control the finances or to have the same person handle both," Paul advised.
Because they find themselves in a quandary over whom to name, many parents, according to Peter, do nothing.
"We try to tell them that if they do nothing, the state will put their children under public guardianship, at least temporarily, and that their worst decision has to be better than having your children end up in the care of the state," Peter said.
When choosing guardians, it is best to choose someone who lives close to your home so the children's lives are not too disrupted. Don't send them across the country, for instance, according to Paul. You also have to be careful to name successor guardians in case something prevents your first choice from taking the children, and your choices need to be reviewed annually.
Next, you need to make sure that your financial plan also takes care of you and your spouse during your lifetimes, so that you never become a burden to your children.
"You need to examine your current lifestyle and your goals and, together with your financial planner, come up with a personalized blueprint for your financial future. Sending your children to college is a noble goal, but if you do that by sacrificing your own retirement, then you aren't doing your children any favors because you may end up living in their basement one day," Peter quipped.
"It is better to have the children share the load of their education cost through scholarships, loans, part-time work or grants than to do it all for them and then end up with no funds for your retirement. Kids who have no skin in the game don't value their education as much anyway."
"While there are many ways to fund an education, there aren't many ways to fund retirement, and you don't get a redo on it. Social Security is only meant to be a safety net," he added.
So, before you make the huge decision about where to send your child to college, Peter suggests that you sit down with your financial planner, if he knows you well, to size up the options.
"The highest cost university may not necessarily be the best place for your child. Do your research and look at all the factors to decide what best fits their personality and your financial ability," he suggested.
In the event that you aren't lucky enough to live to see your children turn 18 and go to college, make sure that your will or trust distributes your wealth to your children in a responsible manner. Many choose to incorporate "spendthrift clauses" to prevent the squandering of the money by those too immature to handle it wisely.
"We all remember what we were like at 18. I can only imagine what I would have done if someone had given me a pile of money at that age," Peter admitted.
"These types of clauses allow you to control the money from the grave, parceling out the inheritance at different points like 20 percent when they graduate from college, another 20 percent when they turn 25 and so forth," he explained. "The purpose of doing it this way is to ensure that you provide your children with the best lifestyle possible over the long term."
As for the life insurance component of your financial plan, Paul said that you can obtain a life insurance policy by approaching a life insurance salesperson or by going to your financial planner.
"But whomever you approach, you want it to be someone who will take a holistic approach," he cautioned.
"Lots of times life insurance salespeople will try to sell you the cheapest, shortest-term insurance, like a ten-year, $100,000 policy. But buying a policy like this is just throwing your money away," Paul continued. "There are a ton of factors that need to be factored in, and everyone's best solution is different. You need someone who will tailor a plan for you, based on a thorough needs analysis of your situation."
Peter added that the purpose of life insurance is to replace one's lost earning potential, so a good base is to consider a policy worth seven to 11 times your earnings. But the most important thing is to not paint yourself into a corner, so that you have no flexibility or options down the road.
Gennuso Financial Group is located at 1801 S. Meyers Road, Suite 150, in Oak Brook. For additional information, call (630) 242-3327 or log on to www.gennuso.com.