The birth of a baby is a wonderful time in a family’s life. One task that isn’t usually at the forefront of new parents’ minds is estate planning, but it should be a priority. Young and healthy people with dependent children need to ensure that their offspring are protected, and that is what an estate plan does.
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.
- Consider Creating a Trust. 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. This trust could be included in drafting your Last Will and Testament or it could be a free standing 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 when your children could receive a direct transfer of assets. For example, delaying direct ownership of their inheritance until your children to reach age 21 or requiring them to use the money to cover college costs. Trusts are for anyone who wants more control over how their property will help their children, after they've passed away.
Take the time now to speak with an experienced estate planning attorney about your new family and your estate plan. You’ll feel better knowing that you have taken yet another step to protect yourself and your children.
Reference: Motley Fool (September 28, 2019) “If You're a New Parent, Take These 4 Estate Planning Steps”