If you are having a baby soon or about to adopt, it is important to take a moment to put on pause ordering diapers and furniture shopping for their room. Take some time to plan for the unexpected. An article from Kiplinger, “Estate Planning 101: 5 Lessons for New Parents”, dives into what new parents (or current parents who haven’t done so yet) need to do in order to make sure they have decided on and implemented the proper documentation for what happens if they are incapacitated or pass away leaving their child without their parents.
The five estate planning to-dos:
1 – “Living Documents” You need to name a health care proxy and a durable power of attorney. This can be the same person or two separate people. As a parent(s), you need to ensure that someone is able to access your funds to care for your child and someone can make proper health care decisions for you in the event you are unable. Your spouse doesn’t necessarily get to make these decisions automatically.
2 – Choose Guardian and Trustee A custodial individual (guardian) and a financial individual (trustee) will need to be appointed for your child to take care of their continuing needs if you are not present. The guardian is in charge of things like where your child attends school, where they go to camp, what they are eating for dinner, etc. Choosing a guardian is an important discussion for parents to have, and one to have with the person(s) you wish to appoint to this position. A trustee pays the bills, files income tax returns due, invests left over money, and distributes (or not) funds to your child. You should have this person serve in this capacity past your child’s 18th birthday to guide them through their “young adult” years. You should name a co-trustee to ensure your funds for your child are being handled properly by a team of people you trust.
Discuss your wishes with both the trustee and guardian for how you envision your child(ren) being raised and the values you want instilled in them. Leaving this/these individual(s) without any clue as to your wishes means they have to guess at what they feel you would have wanted.
3 – Post-Mortem Documents It is easy to think you can just draft a will and be done with these documents, but a will is not effective until approved by the probate court, therefore a will guarantees probate. You need to establish a trust. Your trust will be funded with your assets and will ensure that they do not go through probate after you pass. It will be enough of a transition for those now caring for your children without having to go through the probate process. Typically, you and your spouse will each establish your own trust and name each other as trustee that way if one of you passes the other will have access. Yet, if you both pass then you will want to make sure you have named the same person as trustee to both, usually the one who will serve as your child’s trustee. Make sure you work with an experienced estate planning attorney to ensure all your wishes are met.
4 – Review Life Insurance It is important that even if you are young parents that you take out a life insurance policy, this will make sure that your child has adequate funds available if you pass away. Calculating how much to purchase should focus on a “needs basis”, not necessarily how much you may earn during your lifetime.
5 – Account Ownership and Beneficiary Designations As time goes one, people age and relationships can change. Make sure that you keep designations up to date based on intended beneficiaries. Also, remember that minors should never be named as primary beneficiaries or contingent beneficiaries of any investment accounts or life insurance policies. They cannot control property. Typically, your trust should be named as beneficiary for these kinds of accounts.
At Family Estate Planning Law Group, as part of our ongoing client care program we align, verify and continually track all of our client’s assets, so you can be assured they will be aligned with your estate plan before and after your death, giving you peace of mind knowing there won’t be any surprises for the new care takers of your child(ren).
Becoming a new parent is an exciting time, just remember not to get caught up in the immediate future, because you never know what could happen. You want the best for your child(ren) no matter what, so make sure you put a plan in place that will protect them.
Reference: Kiplinger, August 6, 2018, “Estate Planning 101: 5 Lessons for New Parents”