As explained in prior posts, the Internet Corporation for Assigned Names and Numbers (“ICANN”) is making available new generic top-level domains which include different types of words in different languages.  In April, the TLD Application System (“TAS”) had to be taken offline because of a technical glitch which may have permitted some users to be able to review file names and user names of other users.  After learning of this issue, ICANN provided notice to all users of TAS, even if they were not affected by the problem.  ICANN is hoping to reopen TAS by May 22, 2012.  Once it is reopened, users will have eight days to review their applications and complete any remaining activities, meaning ICAAN hopes to close the application window for new generic top-level domains by May 30, 2012.

For additional information on these new generic top-level domains, click here.   -Kristan B. Burch

The idea that some businesses misuse the “independent contractor” label is not new.  Indeed, the “independent contractor” costs less by avoiding certain state and federal taxes and is not subject to the protections of laws such as the Fair Labor Standards Act, the Family and Medical Leave Act, and state unemployment laws, among others.  For these reasons, businesses have been misusing the label for years.

In fact, the U.S. Department of Labor estimates that up to 30 percent of businesses misclassify their workers.  According to the Obama administration, these misclassifications cost the federal government billions in lost employment tax revenue each year.  Not surprisingly, there are significant efforts to increase enforcement and capture that revenue.  One such mechanism is the Federal Misclassification Initiative, which provides for the hiring and training of additional government investigators tasked with identifying organizations that misclassify workers. 

Pursuant to this Initiative, the Department of Labor has entered into a Memorandum of Understanding (“MOU”) with the Internal Revenue Service, whereby “the agencies will work together and share information to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws.”  The DOL is in the process of expanding its information-sharing and enforcement efforts by entering into similar MOU’s with thirteen states (the DOL is “actively pursuing MOU’s with additional states as well”).

These enforcement mechanisms will serve to increase the risk associated with misclassifying workers.  Not only will the chances of being caught increase, but the cost of being caught has also gone up, as multiple government agencies may be involved in any enforcement process.  As such, it is increasingly important that businesses understand the risk of misclassifying workers and carefully review their relevant policies and procedures.  –David J. Sullivan

III.       Nonqualified Deferred Compensation Plans

Executives and other highly compensated employees frequently receive a portion of their compensation in the form of tax-deferred savings under a nonqualified deferred compensation plan such as a SERP or other “top-hat” plan. As a general matter, until these amounts are paid to the recipient and taxed as ordinary income, the benefits are treated for legal purposes as simply an unfunded promise of the employer’s to pay the employee some stated amount in the future. Employers may set aside assets toward the payment of nonqualified deferred compensation benefits into a “rabbi” trust, but even so the plan is still treated as “unfunded” because assets in the rabbi trust remain available to the employer’s creditors.

Because of the unfunded nature of nonqualified deferred compensation benefits, these benefits are generally unavailable to creditors. The recipient does not have legal title to the benefits until distributed, and there is no specific pool of assets available for creditors to attach. However, depending on how the employer has chosen to design the plan, it is possible that the nonqualified deferred compensation benefits may be subject to certain kinds of creditor claims. For instance, it is common for nonqualified plans to provide for division of assets to satisfy a domestic relations order, similar to the QDRO rules applicable to ERISA plans. Additionally, many nonqualified plans also provide that benefits can be reduced to satisfy any personal indebtedness of the employee to the employer. Generally, however, third-party creditor claims other than those arising through domestic relations orders cannot be satisfied by attaching an employee’s interest in a nonqualified deferred compensation plan.

An executive with a nonqualified deferred compensation plan balance may thus prefer that benefits remain unpaid until a future date for asset protection purposes. Once the benefits are paid to the employee, they become subject to the claims of creditors and do not qualify for rollover to an IRA or other protected vehicle. Depending on the design of the plan, it may be possible for a participant in a nonqualified plan who is due to take a distribution at some specific date to postpone the distribution five years or longer into future (it is generally prohibited under section 409A of the Internal Revenue Code to postpone a scheduled distribution for a period of less than five years).

Every nonqualified plan is different, so review the applicable plan documents to determine to what extent assets are protected from claims of creditors, and also whether “redeferral” elections are permitted in order to strategically postpone a distribution for asset protection purposes.

IV.       State Government Retirement Benefits

Employees of a state government or affiliated institution such as a state college or university may be eligible to participate in plans unavailable to employees of private sector employers, such as 457 plans state retirement systems. Plans sponsored by a governmental entity are exempt from most parts of ERISA, so the protections that generally apply to ERISA plans do not apply to all governmental plans on the same terms. Under federal bankruptcy law, however, benefits provided under a qualified plan or a governmental 457 or 403(b) plan are treated as exempt to the same extent as assets under an ERISA plan.

With respect to state retirement systems, state law will dictate to what extent these assets are protected from creditors. Under Virginia law, benefits accrued under the Virginia Retirement System (VRS) or its related plans, such as the Optional Retirement Plans, are generally protected from the claims of creditors, with three exceptions:

             1.         Process to recover debt to any employer who has employed the individual;

             2.         Administrative actions or court orders to enforce child or spousal support payment obligations; and

             3.         Division of retirement assets to the extent they constitute marital property for purposes of state law.

These protections are weaker than those applicable to ERISA plans and even IRAs in two respects. First, benefits accrued under the VRS plans are subject to the claims of employers, while ERISA plans and IRAs are protected against the claims of employers to the same extent as the claims of other third-party creditors. Second, benefits accrued under the VRS plans are subject to a wider range of enforcement actions to collect child or spousal support or to divide marital property than are ERISA plans, since Virginia law allows administrative actions to collect VRS assets even without a court order as would be required with respect to an ERISA plan.

Residents of Virginia who are eligible for a distribution from the VRS or an ORP should generally prefer to roll the distribution into an IRA (to the extent that the distribution is eligible for rollover) as soon as possible rather than leaving the assets in the state plan. The asset protection rules applicable to IRAs under current Virginia law are stronger than those applicable to the VRS plans. However, as noted above, any decision to roll assets into an IRA should be considered carefully if relocation to another state is anticipated in the future. –Shad C. Fagerland

The recent Supreme Court decision in Home Paramount Pest Control v. Shaffer brings home, in stark fashion, why prudent companies should not rely on possibly-obsolete language in existing contracts with key employees and executives.  While properly drafted agreements can restrict post-employment competition by key employees, the Virginia Supreme Court’s decisions exhibit a continuing reluctance to give employers any latitude in enforcing overly-broad covenants not to compete.  Home Paramount gives us an extreme case why employers should rely only on language crafted with the most recent decisions in mind.

In 1989, Home Paramount’s predecessor corporation found itself in the same situation: a valued employee had left the company and, in apparent violation of his written agreement, proceeded to compete with his former employer.  That case made it all the way to the Virginia Supreme Court as well, and the Court upheld the covenant as reasonable, narrowly-tailored, and enforceable.  This next time around, Home Paramount tried to enforce an agreement that was word-for-word identical to the agreement the Virginia Supreme Court held was enforceable in 1989.  However, the Court – citing some of its intervening decisions disapproving covenants over the past decade – held that the same language that was enforceable in 1989 was not enforceable in 2011.  What’s more, the Court held that the contract was unenforceable “on its face,” regardless of the facts surrounding the violation.

What does this mean for employers?  More than anything else, the Home Paramount decision signals the need for periodic review, and perhaps modification, of existing non-competition agreements.  What was enforceable a few years ago may not be enforceable now, and the time to find out about the problem and fix it is before, not after, a key employee sets up a competing business next door.  As a matter of good human resources practice, we recommend a thorough review of any non-competition agreements drafted more than five years ago, with periodic review of all such agreements perhaps every five years.  That way, the Home Paramount Pest Control decision will not end up, er, “bugging” you. –David J. Sullivan

Effective July 1, 2012, the Virginia General Assembly will be providing trustees of irrevocable trusts a valuable new tool. With the addition of §55-548.16.1 to the Code, Virginia joins a growing number of states (at least 10) with what is generally referred to as “decanting” statutes.

Where an irrevocable trust provides the trustee the discretionary power to distribute principal or income to or for the benefit of one or more current beneficiaries, decanting gives the trustee the special power to appoint assets in the “original trust” into a “second trust.” With decanting, instead of exercising the power of invasion by making a distribution directly to a beneficiary, the trustee will be able to distribute the assets into a second trust for one or more beneficiaries of the original trust.

This new power could prove invaluable in some of the following situations:

1. Where the original trust has outdated administrative provisions, updated provisions could be incorporated into the second trust.
2. Where the situs of the original trust does not have beneficial tax laws, the second trust can change the trust’s situs to another jurisdiction.
3. The second trust could add a trust protector or trust advisor.
4. Where a beneficiary in the original trust has become disabled and has special needs, assets could be transferred into a second trust for that beneficiary with the second trust qualifying as a special needs trust.
5. The second trust could have a different trustee.
6. The second trust could correct drafting errors in the original trust.

In short, decanting gives a trustee the power to amend or modify an irrevocable trust without authorization of the court.

There are some limitations and procedural requirements that must be followed. For example, the second trust may not add beneficiaries who were not beneficiaries in the original trust. Beneficiaries may be deleted, however. If the original trust limits distributions by an ascertainable standard, then the second trust must have similar limitations. There is an exception, however, for special needs trusts. Also, a beneficiary whose interest in the original trust is only a future beneficial interest may not have that interest accelerated to a present interest in the second trust. If the original trust provides any fixed income, annuity, or unitrust benefits for a beneficiary, the second trust may not reduce those benefits. The statute contains provisions designed to preserve marital and charitable deductions as well as a beneficiary’s right of withdrawal that was provided for in the original trust. The trustee exercises the power to decant by a written instrument that is signed and acknowledged by the trustee. The document must set out the manner in which the power is being exercised, the terms of the second trust, and the effective date of the exercise of the power. The trustee of the original trust must give this written notice to the grantor of the original trust, to all qualified beneficiaries as determined under the Uniform Trust Code (other than the Attorney General), and to any trust protector or advisor of the original trust. These individuals may waive the notice requirements. Also, if the original trust was required to file reports with the Commissioner of Accounts, the second trust must do likewise.

The new section does offer protection to trustees by providing that the section is not to be construed as creating or implying any duty on the trustee to act under the section and further provides that there is no inference of impropriety where the trustee does not act under the statute.

The statute does provide that a trustee or beneficiary may bring an action to seek approval or disapproval of the trustee’s planned decanting. The section provides that it applies to trusts regardless of the date the trust was created unless the trust expressly prohibits the exercise of the decanting power. Thus, for those creating a trust or those who have a trust in existence and who want to prevent a trustee’s decanting in the future, language similar to the following should be included in the trust: “My trustee shall not have the power to appoint income or principal of this trust to another trust.”

For the trustee who is administering a trust with outdated provisions or where there are changed circumstances, the new decanting statute will provide an opportunity to transfer assets to a second trust that has more favorable provisions. This can definitely aid the trustee in the management and administration of the trust. –Robert H. Powell, III

Does the newness of internet technology excuse a company from using a competitor’s trademark as a keyword for a sponsored ad link to lure customers to its internet pages?  Apparently not.  In Rosetta Stone Ltd v. Google Inc., (4th Cir., No. 10-2007, 4/9/12), the Fourth Circuit Court of Appeals overturned the special internet trademark rules imposed by a District Court and clarified that the likelihood of confusion analysis within the internet context should follow traditional trademark standards. 

Maker of the now famous foreign language learning products, Rosetta Stone, complained that Google was allowing Rosetta Stone competitors to use its federally registered trademarks as key words that triggered the competitors advertisements to appear on the internet when the trademark was entered as a search term on Google’s search engine.  Google had included several Rosetta Stone trademarks, including “language library,”  “global traveler” and “Rosetta Stone,” in its AdWords sponsored advertisement program. Rosetta Stone alleged that Google’s sale of its trademarks to unrelated third parties for use in sponsored advertising caused consumers to follow the unaffiliated sponsored link advertisements based on the mistaken belief that the associated links/websites were owned by or affiliated with Rosetta Stone when, in fact, they are not.  The Eastern District of Virginia Court (Rosetta Stone Ltd. v. Google Inc., 730 F. Supp. 2d 531 (E.D. Va. 2010), granted Google’s motion for summary judgment holding in part that “no reasonable trier of fact could find that Google’s practice of auctioning Rosetta Stone’s trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone’s products…”  The Court also found that the use of the marks as search engine keywords was protected under the functionality defense as the keywords served an indexing function to pull up the advertisements. 

In reversing this decision, the Fourth Circuit pushed aside the District Court’s internet based analysis and held that the case raised triable issues of fact under traditional likelihood of confusion principles.  The Court explained that evidence of actual confusion – in house studies of confusion, expert reports and survey evidence – was not properly considered on this issue.   The Court also reversed the district court’s approval of a functionality defense emphatically stating that: “it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s nonfunctional mark.”  “Clearly, there is nothing functional about Rosetta Stone’s use of its own mark; use of the words “Rosetta Stone” is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product ‘SPHINX’ instead of ‘ROSETTA STONE.’”

Similarly, the appellate court also reversed the District Court’s grant of summary judgment and dismissal of Rosetta Stone’s dilution claim finding that the lower court had improperly applied Louis Vuitton Malletier S.A. v. Haute Diggity Dog LLC, 507 F.3d 252 (4th Cir. 2007).  The District Court had dismissed the claims because Rosetta Stone failed to present evidence to show that Google was using the trademarks to identify its own goods and services and failed to demonstrate that Google’s use was likely to impair the distinctiveness or reputation of the Rosetta Stone trademarks.   The Fourth Circuit rejected both of these contentions, holding that the trademark statue (15 U.S.C. §1125(c)(3)(A)) requires Google—not Rosetta Stone—to establish as a defense that it made fair use of the trademarks in a manner other than as an identifier of source. “Thus, the district court erroneously required Rosetta Stone to demonstrate that Google was using the ROSETTA STONE mark as a source identifier for Google’s own products.” The appeals court further held that the district court mistakenly read the Haute Diggity Dog decision to require proof of actual economic loss or reputational injury, rather than a likelihood of dilution.

Stephen E. Noona is the head of Kaufman & Canoles’ Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group.  In his 26 years of practice, he has been counsel in hundreds of intellectual property cases in federal courts across the nation, including over ninety (90) patent cases in the Eastern District and is Fellow in the American College of Trial Lawyers. He regularly appears before the judges in all four Divisions of the Eastern District on intellectual property matters.  -Stephen E. Noona

How safe are the assets in your retirement account? Imagine the following scenarios:

 1.  You are in a car accident that results in a serious injury. Your insurance coverage is insufficient, leaving you with personal liability in the amount of $250,000. You have $200,000 in a 401(k) account, $50,000 in an IRA, and $25,000 in net assets outside these accounts. Can the injured party collect the judgment by attaching the assets in your 401(k) plan? How about your IRA?

 2.  After losing your job, you find yourself over $50,000 in debt and begin to consider filing for personal bankruptcy protection. Your most significant asset is $25,000 in an IRA that originated as a rollover from your former employer’s profit sharing plan. Are you required to count the assets in your IRA when determining whether you can file bankruptcy? Will you be required to apply the IRA assets to pay off part of your debt? 

3.  You recently switched jobs and have $75,000 in an account under your former employer’s 403(b) plan. You are not thrilled with the investment options available under the 403(b) plan and would like to roll the account over into an IRA; however, you are concerned about a pending legal judgment and want to make sure that these assets will be protected against your creditors to the maximum extent possible. Should you keep the assets in the 403(b) plan or roll them into an IRA?

Asset protection is an important retirement planning consideration that is often overlooked. When considering where to place your retirement savings, keep in mind that different savings vehicles may leave your assets more exposed to the claims of creditors than others. This article outlines the basic asset protection rules applicable to ERISA plans, IRAs, nonqualified deferred compensation plans, and other common retirement savings vehicles.

I.  ERISA Plans

 Assets held in a qualified retirement plan sponsored by an employer or former employer (including 401(k) plans, profit-sharing plans, defined benefit pension plans, and ESOPs, among other types of plans) are covered by the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal law that mandates a strong level of protection for retirement savings. ERISA also applies to certain 403(b) plans offered by non-profit or governmental employers. As a general rule, ERISA plans offer the most solid protection that is available under the law.

ERISA (as well as the parallel sections of the U.S. Tax Code) protects plan assets in several ways. First, ERISA requires that assets held in an employer’s retirement plan must be used for the “exclusive purpose” of providing benefits to plan participants and beneficiaries. ERISA also contains an “anti-alienation” rule prohibiting a plan from assigning plan benefits to any person other than the plan participant or beneficiary, and also from allowing any attachment, garnishment, or other forms of legal process against plan assets. What this means as a practical matter is that the plan is prohibited from paying the amount credited to a participant’s account to anyone but the participant. If a creditor contacted the plan administrator seeking to collect on a personal debt, the plan administrator would be required by law (and by the terms of the plan) to deny the claim.

As an additional layer of protection, ERISA plans are protected against claims under competing state laws. ERISA contains a broad preemption clause providing that ERISA supersedes any state law to the extent that the law “relates to” an employee benefit plan, meaning that ERISA’s protections (such as the anti-alienation rule) can be used to defend against collection actions in any U.S. jurisdiction.

The major exception to the exclusive benefit and anti-alienation rules is Qualified Domestic Relations Orders (“QDROs”), which pertain to the collection of court-ordered alimony, child support, or property division payments. If a plan participant is ordered to use assets from an ERISA plan in connection with a QDRO, the plan administrator can divert the assets in the plan account as required by the order without first obtaining the participant’s consent.

With respect to bankruptcy, assets held in an ERISA plan are treated as exempt for purposes of federal bankruptcy law (but may not be treated as exempt in all states, so make sure to do your homework to understand the bankruptcy laws applicable to the state where you reside or file for bankruptcy protection). This means that assets held in an ERISA plan are not counted as assets that must be used to pay off creditors under the federal bankruptcy rules, and the debtor is thus allowed to retain these assets after going through bankruptcy. Under Virginia law, assets held in an ERISA plan are also treated as fully exempt to the same extent as provided under Federal law. (Prior to 2007, however, Virginia law only exempted ERISA plan assets up to a certain level – a reminder that state bankruptcy laws can differ from federal laws in important ways, and can also be subject to change.)

II.        Individual Retirement Accounts (IRAs)

Assets held in an IRA or Roth IRA are not covered by ERISA, and thus do not qualify for the heightened protection of the exclusive benefit rule, anti-alienation rule, or ERISA preemption. This result applies regardless of whether the assets originated as contributions to the IRA or as a rollover from another IRA or ERISA plan. One implication of a decision to roll assets out of an ERISA plan and into an IRA is thus that the rollover may leave the assets more exposed to the claims of creditors than otherwise would have been the case.

Assets held in an IRA are generally subject to state law asset protection rules, which can vary widely from state to state. Many states, including Virginia, exempt assets held in an IRA from the claims of creditors to the same extent as assets held in an ERISA plan. (Prior to 2007, IRA assets were not treated as exempt under Virginia law if the debtor also held assets in an ERISA plan.) However, this is not universally the case. In some states, IRA assets are only partially exempt from the claims of creditors, and in others IRA assets are not exempt at all.

Federal bankruptcy law exempts assets held in an IRA to the same extent as assets held in an ERISA plan. Residents of a state that does not fully exempt IRA assets for purposes of state bankruptcy law may thus prefer to apply federal exemptions if allowed.

The major point to consider when deciding whether or not to roll assets from an ERISA plan into an IRA is that IRA assets will not be protected equally in all locations. If you currently reside in a state, like Virginia, that treats IRAs the same as ERISA plans for asset protection purposes, you may feel comfortable making the rollover. However, if you ever relocate in the future, you may move into a jurisdiction that leaves the IRA assets more exposed to creditors. General information about the bankruptcy and asset protection rules applicable in different states can be found online at sites such as Legal Consumer.com (http://www.legalconsumer.com/), but it is always best to seek the advice of counsel licensed to practice law in the state in question. 
–Shad C. Fagerland

The question of whether the owner of a trademark can prevent its use as a “keyword” by Google and other Internet search engines has been in play ever since the search engine providers found effective ways to turn “sponsored links” and “sponsored ads” into major revenue streams.  Court opinions dealing with this question delve into numerous legal theories invoked by trademark owners to try to stop search engine providers from selling their trademarks as keywords that, in effect, point consumers to advertisements by their competitors when the consumers enter the trademark as a term to be searched.  The fundamental issue has always been, and remains, whether  trademark law provides a remedy to these trademark owners in cases where their marks are used only as keywords and do not actually appear in the sponsored ads.

Over the years the legal pendulum has swung from side to side on this question, with some court decisions being more favorable to the search engines’ position that keyword advertising does not violate trademark rights, and others being more favorable to the opposite position of the trademark owners.  The most recent decision addressing the question was issued by the U.S. Court of Appeals for the Fourth Circuit on April 9, 2012, and moved the pendulum back in the direction of the trademark owners.  In this case, the owner of the Rosetta Stone trademark was objecting to Google’s sale of that and other trademarks as keywords leading to sponsored link advertisements by other parties.  The lower court had ruled in favor of Google, but the Appeals Court reversed its ruling on the questions of whether Google’s keyword advertising program might involve direct infringement, contributory infringement or dilution of Rosetta Stone’s rights in its trademarks.  The case has been sent back to the lower court for further consideration of these issues. 

This decision by the Court of Appeals for the Fourth Circuit in favor of Rosetta Stone will likely give encouragement to other trademark owners who might want to challenge use of their trademarks in keyword advertising programs of Google and other search engine providers.  However, it bears mentioning that other recent court decisions have been more favorable to the position of the search engine providers than the Fourth Circuit’s decision in the Rosetta Stone case.  Of particular note is a March 8, 2011 decision by the United States Court of Appeals for the Ninth Circuit, which emphasized the growing sophistication of Internet users, their consequent ability to recognize sponsored ads for what they are and, therefore, the decreasing likelihood that such ads will create customer confusion as to the source of the goods or services promoted by the ads.

The court decisions mentioned above are Rosetta Stone Ltd.  v. Google, Inc. (Fourth Circuit, April 9, 2012), and Network Automation, Inc. v. Advanced Systems Concepts, Inc. (Ninth Circuit, March 8, 2011).  They are not the first and will not be the last to give conflicting judicial guidance on the legality of Internet keyword advertising programs.
–Robert E. Smartschan

Often, when I meet with clients to discuss their estate plan, one of the most difficult decisions that they face is naming a guardian for their minor children. A guardian is the person or persons who are nominated in the Last Will and Testament of a decedent to provide for the care and custody of minor children in the event that neither of the natural parents survive until all of their minor children attain the age of majority. In essence, a parent is being asked to name a substitute for himself or herself to continue to raise his or her children in the extremely unfortunate event that he or she is not able to do so.

The nomination of a guardian can be a complicated decision for many reasons, including the advancing age of parents, the fact that potential guardians do not live in the immediate area and the lack of trusted and responsible family members and friends. Often because of having enjoyed a stable and nurturing childhood, a younger couple may be most comfortable nominating his or her parent(s) to serve as the guardian of their minor children, but they, at the same time, may be concerned that the responsibility of providing for the care of one or more minor children may become increasingly too demanding and burdensome for the elder family members as they continue to advance in age. Even if the financial assets are available to a guardian to provide for the physical and educational needs of a child, it can be physically and emotionally draining to manage all of the demands that accompany the daily living requirements of young children, including school schedules, extracurricular activities and hobbies, disciplinary issues, development challenges and obstacles, not to mention the emotional adjustment to the loss of the child’s parents. Serving as a guardian can certainly be a daunting task for anyone, and may be even more of a challenge for grandparents.

There are many factors and questions for a parent to consider when tasked with nominating a guardian for his or her minor children. Although the decision is rarely an easy one, with any luck, evaluating potential candidates for a guardianship by applying these considerations may provide a clearer direction for parents facing this dilemma. Parents should ask themselves the following questions and carefully consider the candidates in light of their conclusions:

1. Do your children have a good relationship with the guardian(s)? Your children should be comfortable around a potential guardian. They should be able to talk openly with the guardian and not be timid or hesitant to approach him or her with their problems and concerns. Since children can be intimidated by some adults, the guardian should be someone who relates well to your children and has a genuine love for them. Although a legal guardian is not required to be a family member, he or she is likely to be someone with whom you and your child spend a considerable amount of time and share common interests and values.
2. What type of lifestyle will the guardian provide for your children? Consider the guardian’s work schedule and career demands, religious beliefs and practices, disciplinary standards and behavioral expectations, educational preferences, general health condition, other responsibilities and the family dynamics of the guardian, i.e., the guardian’s other children and family members. You will likely be drawn to individuals who share your beliefs and prioritize their lives similar to yours, but there may be some critical differences that impact your decision.
3. Where does the guardian live? It seems to be more typical for surviving children to move to the guardian’s home and/or community, rather than the guardian relocating to where the children currently live. Children experiencing the loss of a parent are encountering extreme emotional loss and the affects of moving away from their community and leaving their school, classmates, teachers, friends and neighborhoods may add to their sense of loss. Parents therefore may prefer to name a guardian who lives close by or who is willing to relocate to their community without a tremendous amount of upheaval.
4. Will the guardianship place a financial burden on the guardian? Although most parents plan to provide for the financial security of their surviving children through life insurance or accumulated wealth, that may not always be the case, and the financial demands of raising a child may deplete the assets left for a minor beneficiary before he or she becomes financially independent. Additionally, adding one or more children to an existing household will result in higher living expenses for items such as utilities, food and entertainment. A guardian may need to be prepared to supplement the funds available for the care of a minor child with his or her own assets if need be, without resenting the child or children who have been placed in his or her care. The guardian may or may not be the trustee of a minor child’s inheritance. Therefore, he or she should be someone who can work well with a third party trustee in order to provide for the best interests of the minor child. The guardian should be someone who is willing to confidently speak on behalf of a minor child and demand that his or her wellbeing be of the utmost importance.

When nominating a guardian, it is best to name at least one alternate guardian to serve in the event that the primary designee is or becomes unable to serve in this capacity. Additionally, since circumstances are likely to change with the passage of time, parents should be vigilant in reviewing their estate planning documents as the circumstances may require. Finally, it is imperative that a parent clearly and frankly communicate their wishes and expectations to the individuals nominated as guardians in order to ensure that they are willing to assume the tremendous responsibility that may be required of them. It is no easy task, but recognizing the importance of providing for the protection and care of your most valuable assets, your children, by properly crafting and updating your estate plan as necessary is a endeavor that every parent should embrace.–Vonda Chappell