Estate Planning For New Parents
No matter what stage of life you are in, Estate planning is essential. Becoming a new parent is stressful and overwhelming. With so much to think about, it’s easy to put off the topic of estate planning until later. But by then, it may be too late.
No one wants to plan for these unexpected moments, but the time to do it is now to have a seamless transition for your family if anything should occur!
Here are five easy steps new parents can take to prepare for the unexpected:
Step 1: Create a Will
The basic foundation of any estate plan is a will. Wills are documentation of your decisions that will affect your family and loved ones when you pass away. They intend to represent your plans and wishes for your dependents, assets, and estate representatives.
Your Will should:
- Establish a guardian to raise your children and a trustee to handle the finances. The guardian and trustee are often the same but don’t have to be.
- Name an executor for your estate. After you die, your estate needs to be settled, taxes paid, and property needs to be distributed to the beneficiary’s estate plan.
- Specify who inherits your assets. You may have assets you want certain people to receive, like jewelry or money to go toward charity. Beneficiary accounts, such as bank accounts, retirement plans, or life insurance policies, automatically assign assets to others listed on the account when you die. As long as you have the desired beneficiary listed on the accounts, you don’t need to specify them in your Will. Assets you co-own jointly with your spouse, such as real estate, typically do not go through probate; they transfer to the co-owner named on the title.
Step 2: Assign Power of Attorney
Another critical element of an estate plan is deciding on your health care and financial power of attorney. Two basic types of power of attorney are financial and health care.
Financial power of attorney: Financial power of attorney, known as your agent, to make decisions and act on your behalf regarding your finances and property.
Health care power of attorney: Health care power of attorney gives your agent permission to make decisions about your health care if the circumstance arises that you cannot. A living will is sometimes combined with a power of attorney and called an advance or health care directive, explaining your desired medical care in certain situations.
Step 3: Establish a trust
A trustee has the financial responsibility to take care of what you left behind for your child and other loved ones. Creating a trust ensures your money and assets are protected and given to whom you intend them to be given.
A trustee and guardian can be the same or designated to two individuals. A trustee may be with your child well into adulthood – depending on what kind of assets or money you have left behind and how you want it dispersed. A guardian is only responsible for your child(ren) until they turn 18.
Consider a Living Trust. A living trust lets you shift ownership of your assets to separate funds during your lifetime. Assets in a living trust won’t have to go through probate, so your heirs won’t have to wait to inherit the property. Unlike a will, a living trust also provides privacy because it is not part of the public record. Finally, a living trust may enable you to protect the money that would otherwise have to go to creditors after your death. There are two kinds of living trusts, revocable and irrevocable.
- A revocable trust can be changed whenever you want, up until death. During your lifetime, you are the trustee, and the property in the trust remains yours. When you die, the property becomes part of your estate, and the successor trustee you selected will distribute it according to your wishes. Once all the assets have been distributed, the revocable living trust is dissolved. A revocable trust does not protect the assets in the trust from lawsuits. If you are sued by a creditor and lose the lawsuit, you might have to pay the judgment out of money from the trust. A revocable trust offers the flexibility to adjust as your family grows.
- An irrevocable trust cannot be changed once you sign it. All the assets listed become the property of the trust. This means they aren’t subject to estate taxes and can’t be taken to pay your debts. An irrevocable trust is commonly used by people who have extensive assets.
Step 4: Buy life insurance.
Life insurance is separate from your estate plan because you won’t require your lawyer to draw anything up. But life insurance can be as crucial when planning for the unexpected as creating a trust and Will and can assist with the finanacial impact of an unexpected loss.
Step 5: Update beneficiary designations.
Whether it’s life insurance, retirement accounts, investment accounts, your bank accounts, real estate investments, etc., there’s no better time than now to ensure that your beneficiaries are set up amongst your accounts.
Consistently Review Beneficiaries for Accounts and Policies. Check your retirement accounts and life insurance policies to be sure your beneficiaries are up to date. Things change, and sometimes people initially assigned to specific policies need to be adjusted.
Get your affairs in order. If you still need to do so, look over your estate plan. Make sure all documents reflect your current wishes and needs. You should also update these documents every few years as your family changes.
It’s essential to have a plan set up for if something happens to you that requires life or death decisions! Having a power of attorney, and naming a health care proxy, is essential.
If something happens to you, and you die, you want to ensure you have a will and trust set up so that your child is raised the way you want to, and your parenting spirit will live on through this person.