Estate Planning for Parents

Most young families do not think about their estate planning because they do not want to make difficult decisions about who will care for them or their children if they cannot; however, this is the most important time to think about estate planning. This is the time to determine who will care for your child(ren) if the unthinkable happens and you are no longer here to care for them. The two most important questions are: who will raise your children in your absence, and where will the money come from?

Estate planning becomes even more critical when you become a parent. Here are some essential steps for new parents:

1. Draft a Will: A will is a legal document that outlines your wishes regarding the distribution of your assets and the guardianship of your children if something happens to you and your partner. Designate a guardian who will care for your children in case both parents pass away.
2. Establish Trusts: Trusts can be set up to manage assets for your children until they reach a certain age. This ensures that your children are financially supported even if you're not around. You can specify conditions for asset distribution, such as reaching a certain age or achieving certain milestones.
3. Designate Beneficiaries: Make sure you've designated beneficiaries for your life insurance policies, retirement accounts, and any other accounts or assets that allow for beneficiary designations. This ensures that these assets pass directly to your chosen beneficiaries outside of probate.
4. Create Advance Directives: Establish powers of attorney for financial and healthcare decisions. This allows someone you trust to manage your finances and make healthcare decisions on your behalf if you become incapacitated.
5. Consider Life Insurance: Life insurance can provide financial security for your family if you or your partner pass away. Calculate how much coverage you need to ensure your family's financial stability.
6. Plan for Education Expenses: Start saving for your children's education expenses, such as college or vocational training, through accounts like 529 plans or education savings accounts.

 

NAMING A GUARDIAN FOR YOUR CHILD

The most important issue facing new parents is determining who will care for your child(ren) if both you and your spouse are unable to do so. Often, couples determine that the appropriate person to care for their child may not be the appropriate person to handle the assets left to the child. A Will can name who you wish to serve as guardian for your child, should anything happen to you, avoiding a potentially lengthy and costly court proceeding to appoint a guardian.

Choosing a guardian for your child(ren) is one of the most important decisions you'll make as a parent. Here are some steps to help you choose the right guardian:

1. Consider Values and Parenting Style: Look for someone who shares similar values and parenting philosophies as you. Consider how they discipline, educate, and nurture their own children if they have any.
2. Assess Emotional and Physical Support: Choose someone who can provide emotional support and stability to your child during what would undoubtedly be a difficult time. Consider their ability to provide a loving and stable environment.
3. Evaluate Financial Stability: Ensure that the potential guardian is financially stable enough to provide for your child's needs. While your estate planning can help financially, it's important that the guardian can also support your child's upbringing.
4. Assess Location and Lifestyle: Consider the location and lifestyle of the potential guardian. Will your child need to move far away? Is the environment safe and suitable for raising children?
5. Talk to Potential Guardians: Have open and honest conversations with potential guardians about their willingness to take on the responsibility. Discuss your expectations, values, and any concerns you may have.
6. Consider Relationship with Your Child: Choose someone with whom your child has a positive relationship and feels comfortable with. It's important that your child feels secure and loved in the care of their guardian.
7. Nominate Backup Guardians: Life can be unpredictable, so it's a good idea to nominate backup guardians in case your first choice is unable or unwilling to fulfill the role.
8. Review and Update Regularly: Circumstances change, so it's essential to review and update your choice of guardian periodically, especially after major life events such as divorce, death, or changes in relationships.

 

WHERE WILL THE MONEY COME FROM

Taking care of your children financially in the event of your death is a crucial aspect of estate planning for new parents. Here are some steps to help ensure your children are provided for:

1. Assess Your Financial Situation: Start by evaluating your current financial situation, including your income, assets, debts, and expenses. This assessment will help you determine the amount of financial support your children will need in your absence.
2. Purchase Adequate Life Insurance: Invest in a life insurance policy that provides sufficient coverage to support your children in case of your death. Consider factors such as your income, outstanding debts, mortgage, and future expenses like childcare, education, and healthcare.
3. Emergency Fund: Build an emergency fund to cover unexpected expenses and provide short-term financial stability for your family. Aim to have enough savings to cover at least three to six months of living expenses.
4. Establish Trusts: Set up trusts to manage and protect assets for your children until they reach a certain age or milestone. Trusts can ensure that your assets are used for their benefit and distributed according to your wishes.
5. Designate Beneficiaries: Review and update the beneficiary designations on your life insurance policies, retirement accounts, and any other accounts or assets. Ensure that these assets pass directly to your chosen beneficiaries outside of probate, providing immediate financial support for your children.

 

LEAVING LIFE INSURANCE AND RETIREMENT ACCOUNTS FOR YOUR CHILD

In deciding who to name as the beneficiary of your life insurance or retirement plan, you will likely want to provide for your child if you and your spouse are deceased. However, you should not name a minor as the outright beneficiary or contingent beneficiary. Your will can also provide that any monies payable from your estate to your child should be held in a trust for their benefit and then given to them outright at a certain age. Putting these assets in trust allows your child to be taken care of in your absence and avoids the monies being held in a non-interest bearing account for the minor child until they reach the age of 18, at which time they will receive a distribution outright of the full amount. More advanced estate planning can provide for a trust that can protect your children from creditors, estate taxes and from having to sign a prenuptial agreement to protect their inheritance in case of divorce.

Contact Will and Trust Planning Today

For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.