Becoming a parent means taking on a whole new level of responsibility. After all, you've now got a new life in your hand's and your child is dependent on you for everything. While the list of things you need to do as a new parent is endless, there's one essential item that should make its way onto it: Estate Planning. People often don't think about estate planning when they're young, healthy, and starting a new family, but your child is depending on you to make decisions now that will set him or her up for a secure future even if the worst happens.
There are a few key estate planning steps that every parent should take to ensure they have protected their child(ren) no matter what the future holds.
1. Buy Life Insurance
As a parent, I understand that raising children is expensive. A life insurance policy can protect your family financially when you pass and ensures there are funds available for the other parent to continue providing for your children. And if both parents die, life insurance can be used to raise the child to adulthood or to fund the cost of a college education. You can name your children as beneficiaries of these policies as soon as they are born, but they will not be able to access the accounts until they are adults. You can amend this by setting up a trust that will receive your life insurance policy and then naming a trustee to distribute those assets to your child.
2. Name a Guardian for your Minor Children
Naming both a guardian is one of the most important parts of estate planning for a minor child. The guardian will raise your child if they become an orphan. If you are unable to raise your children, you don't want surviving family members fighting over who should do it, and you don't want this decision left to the courts. By naming a guardian, you get to choose someone who you feel shares your values and who will do a good job raising your kids knowing that no one will raise your children exactly how you would have.
3. Create Living Documents
Just like placing the oxygen mask on yourself in the airplane before placing it on a child’s head, the most important aspect of any person’s estate planning relates to their own personal needs. That means starting with a person’s own living documents. By naming a proper health care proxy and executing a durable power of attorney, a parent who becomes incapacitated can ensure someone else can access their funds for their child’s needs and make proper health care decisions for the parent in the interim.
4. Set Up a Trust
Should you pass away before your children turn 18, they cannot directly control any of the inheritance you leave for them. This can create problems. The court may have to appoint someone, known as a conservator, to manage assets you leave to your child. Even more troubling is that your child could also end up inheriting a whole bunch of money and property with no strings attached at age 18.
For parents that would like more control -- including specifying who will manage assets, how your money and property should be used for your children, and when your children should directly receive a transfer of wealth -- consider creating a trust. By creating a trust, you can name a designated person to manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your kids as they grow. And you can set conditions on your children's receiving a direct transfer of assets, such as requiring your kids to reach age 21 or requiring them to use the money to cover college costs.
When your estate plan reflects your wishes, you won’t have to worry about what will happen to your family when you’re gone. Don’t wait until after your baby arrives—if you haven’t started estate planning yet, contact us. We will help you design a plan that protects your wishes.
Comments