Estate Planning for Grandparents Stepping in as Parents

A quiet trend in the U.S. is that a growing number of parents serve as the primary parents for their grandchildren, and need Estate Planning to reflect that situation. The Census Bureau started tabulating this information in 2000, and since then the numbers have grown. The 2010 census showed that 3.1 million children are living without their biological parents, and 59% of them were living with their grandparents. Some people refer to this situation as a “skip generation” while others prefer the term “grandfamilies.”

There are many reasons grandparents might be parenting their grandchildren. A divorce, job loss, or military deployment might leave both parents unable or unwilling to raise their children. Other parents are absent because of death, physical or mental illness, substance abuse, or incarceration. Whatever the reason, more grandparents are stepping into the role of parents because they don’t want to see their children in foster care or other parts of the social services system.

 There are many challenges for grandparents becoming primary parents. This is a financial advisory, so I’ll focus on the financial aspects. But there’s a growing network of web sites, support groups, and other resources for grandparents who want help or advice with the full range of issues. You can start with the federal government’s web site, http://www.usa-.gov/Topics/Grandparents.shtml (ignore the hyphen), and AARP’s GrandFamilies Guide on its web site at www.aarp.org.

The first thing a grandparent needs to do is consider his or her legal status. Assuming the parent’s role for the long-term isn’t the same as taking care of a child for the weekend. Grand-parents in most states don’t automatically have many legal rights, including being able to approve medical care and enroll a child in school, though several states do confer such rights.

There are several different possible legal statuses for grandparents, and the consequences vary from state to state. AARP’s web site has what it calls GrandFact Sheets that indicate each state’s laws on whether a grandparent can authorize medical care or schooling without special status. You really should meet with a lawyer who knows these issues before making a decision. Here’s a summary:

Power of attorney. The parents sign a document giving you the power to make decisions about the child. The power could be a general power, giving you authority over everything affecting the child. Or the power could be limited to specific areas. The POA is commonly used for fixed-term situations, such as when a parent is deployed by the military or traveling, but it can be used for long-term situations. The POA is simple and easy when both parents (when both are alive and have legal custody) amicably agree to the arrangement.

An advantage of the POA for the parents is that it doesn’t remove the legal rights of the biological parents and can be revoked by the parents at any time.

Custody. Legal custody usually is awarded by a court, usually a family or juvenile court, though parents can voluntarily transfer legal custody in writing. If one or both parents object to transferring custody and the parents want it, the grandparents have to demonstrate to the court why having the parents retain custody is not in the best interests of the child. Custody does not legally sever the other family relationships, and it can be reversed.

Custody gives the grandparents the legal right to make decisions affecting the child while they have custody, though the court or a parent voluntarily conferring guardianship can put conditions or limits on it.

Guardianship. The meaning of this status and the authority it confers varies between the states. It can refer to someone caring for a child under a POA, or there can be different types of guardianship ordered by a court. Generally the parents don’t lose their all their legal rights when someone becomes a guardian, but that varies by state and by the type of guardianship.

Custodians and guardians generally assume legal responsibilities to support a child and keep him or her safe. A POA generally confers rights to make decisions without imposing legal responsibilities to care for the child.

Adoption. When grandparents adopt a child, this ends the legal status of the parents regarding the child. The adoptive parents assume all legal rights and responsibilities.

Whichever status you seek, a grandparent raising a grandchild needs to acquire as many legal documents about the child as you can: birth certificate, passport, medical records, and school records.

Before deciding which legal status to seek, consider how the different choices affect financial support you might seek. Adoption by the grandparents often reduces the financial resources available to the grandchild. Here are the main sources of support you might consider with some guidelines to how your legal status affects them.

Temporary Assistance for Needy Families. This is what used to be called welfare. The key point for grandparents is that when they have too much income or assets to qualify for family assistance, they still can apply for a child-only grant that will be based on the child’s income.

Medicaid or CHIP. The same basic rules apply here. When a child isn’t living with his or her parents and isn’t covered under other medical insurance, a Medicaid application based only on the child’s income can be submitted and will be reviewed considering only the child’s personal resources.

Social Security. When one or both of a child’s parents are deceased, the child might be eligible for survivor benefits. If the child is disabled, he or she might be eligible for disability benefits regardless of the parents’ status. Check with Social Security for eligibility and how to apply.

Medical insurance. When you’re working, your employer-sponsored medical plan might cover a grandchild living with you. Check with your employer for details. Your Medicare won’t cover a grandchild living with you.

Taxes. You should be able to claim tax benefits such as a dependent exemption and deductions for medical expenses. You also might be eligible for the earned income tax credit (if you’re working), tax credits for child care, and credits or deductions for education expenses. Check the IRS web site for free publications with details on each write off.

Many states have additional programs that might be available to you, the child, or both.

For most of the assistance programs, you don’t need to be a legal custodian or guardian, but the rules vary from state to state. If you aren’t working with an attorney or other advisor who knows the details, check with the local Social Services Agency for help.

There are many more issues that grandparents serving as primary parents need assistance with, including trying to have enough life insurance in case something happens to you. For more sources of information, go to your favorite Internet search engine and search for “grandparents raising grandchildren” or something similar. The two web sites listed above are excellent starting points.

RW April 2012.