Congratulations, you’re a new mom or dad. There’s a lot to think about, but there is a vital task that should be a priority. That is making an estate plan, or more importantly, a total Family Protection Plan. People usually don’t worry about estate planning, when they’re young, healthy and starting a new family. However, your new baby is depending on you to make decisions that will set him or her up for a secure future.
Motley Fool’s recent article, “If You’re a New Parent, Take These 4 Estate Planning Steps” says there are a few key estate planning steps that every parent should take to make certain they’ve protected their child, no matter what the future holds.
- Purchase Life Insurance. If a parent dies, life insurance will make sure there are funds available for the other spouse to keep providing for the children. If both parents die, life insurance can be used to raise the child or to fund the cost of college. For most parents, term life insurance is used because the premiums are affordable, and the coverage will be in effect long enough for your child to grow to an adult.
- Draft a Will and Name a Guardian for your Children. For parents, the most important reason to make a will, is to name a guardian for your children. If you designate a guardian, you will select the person you think shares your values and who will do a good job raising your children. This way, it’s not left to a judge to make that selection. Do this as soon as your children are born.
- Update Beneficiaries. Your will should say what happens to most of your assets, but you probably have some accounts with a designated beneficiary, like a 401(k), and IRA, or life insurance. When you have children, you’ll need to update the beneficiaries on these accounts for your children to inherit these assets as secondary beneficiaries, so they will inherit them in the event of your and your spouse’s death. But naming minor children as beneficiaries can lead to major problems and unnecessary legal expenses. A minor can not receive insurance proceeds, so it will be the responsibility of your executor or the people you’ve named to be your child’s guardian, to set up a trust to hold the money on behalf of the child. The way to prevent this is to set up a revocable living trust.
- Look at a Trust. As stated above, if you die prior to your children turning 18, they can’t directly take control of any inheritance you leave for them. This means that a judge may need to appoint someone to manage assets that you leave to your child. Your child could also wind up inheriting a lot of money and property free and clear at age 18. To have more control, like 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, ask your estate planning attorney about creating a trust. With a trust, you can designate an individual who will manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your children, as they age. You can also create conditions on your children receiving a direct transfer of assets, such as requiring your children to reach age 21 or requiring them to use the money to cover college costs. Among many other reasons, trusts are for anyone who wants more control over how their property will help their children, after they’ve passed away.
When you have a new baby, working on your estate planning probably isn’t a big priority. However, it’s worth taking the time to talk to a professional estate planning attorney for the security of knowing your bundle of joy can still be provided for, in the event that the worst happens to you.
Reference: Motley Fool (September 28, 2019) “If You’re a New Parent, Take These 4 Estate Planning Steps”