It may seem odd to ask young parents to think about estate planning, but starting a family is actually the perfect reason to address some really important questions.
After all, becoming a parent isn’t just about choosing names and picking out nursery colors. It’s about being wholly responsible for someone else—a child—for life.
While it’s difficult to even contemplate the unthinkable, it’s imperative that new parents plan for every possibility to ensure that their children are protected, cared for, and financially secure.
Here are 6 important to-do planning items that young parents should address.
1. Choosing a Guardian for Minor Children
One of the most important decisions young parents need to make is who will care for their children in the event that they are no longer able to do so. While choosing one guardian may seem difficult enough, it is actually preferable to choose two so that there is a backup option in case the first choice is either unable or unwilling to step in at the time of need.
In addition, other considerations that new parents should make when choosing a guardian include:
- Selecting someone who has the physical, emotional, and financial means to care for and raise a child – and is willing to take on the immense responsibility of making difficult decisions as they may arise. Similarly, the person selected as guardian ideally should share the parents’ beliefs and parenting philosophies.
- The location of the guardian should also be considered – do they live close by or are they willing to relocate?
- It is typically advised that young parents choose a guardian that is closer to their age, rather than a grandparent.
- It is also recommended not to choose another couple as guardians as unfortunately, there is always the possibility of divorce which could lead to an unwanted custody situation.
Obviously, choosing a guardian(s) is a very hard decision that will likely bring up uncomfortable conversations or a lot of difficult questions that new parents may not feel completely prepared to answer. However, the alternative is having the Court appoint a guardian, so it’s probably preferable to deal with the issue as a family rather than leave such an important question to chance.
There are a number of important estate planning documents that new parents should have in place.
- Last Will and Testament: This document communicates, legally, how new parents wish to bequeath property and/or assets, and name as guardian for their children.
- Health Care Directives: This document names the person who will make medical decisions on a person’s behalf it that person is incapacitated and unable to do so.
- Living Will: Also called an “advance directive,” this document defines a person’s wishes related to end-of-life care and covers things like pain medication and whether or not resuscitation should be used.
- Power of Attorney: Similar to the health care directive, if a person becomes disabled mentally or physically, this document gives the designated person authority to access and manage assets, with the least expense and without court intervention.
Also, new parents should name an executor or trustee for their estate. This way, if either parents die or the surviving spouse dies or becomes incapacitated, there will be someone who knows the parents’ wishes to take responsibility for financial and legal matters on behalf of minor children.
3. Designating/Updating Beneficiaries
For any beneficiary-designated assets, such as IRA or 401(k) accounts or insurance policies, new parents should make sure that they have designated beneficiaries appropriately and/or have updated them if necessary. This is usually a very simple matter of filling out a form, and it’s also fairly easy to update at any time.
4. Consider Establishing a Trust
Many people assume that a minor’s inheritance automatically goes directly to the appointed guardian to be used for the care of the child, but this isn’t the case.
Unless otherwise stipulated by a trust, the Court controls any minor’s inheritance until the child reaches the age or 18 or 21. When the Court appoints someone to oversee such decisions, it will likely be a stranger. In addition, there will be fees (which will be paid out of the inheritance), and the default distribution of funds will probably involve equal lump sums to all children upon reaching the requisite age, without any consideration of variable needs, individual temperament, or parental wishes.
A trust will ensure that a child’s inheritance is handled according to the parent’s wishes, not according to the Court. There are a multitude of ways trusts can be written to allow for all kinds of circumstances and preferences, so it is prudent to discuss the various options with an estate planning attorney.
Life is notorious for throwing curve balls like injuries, illnesses, and job loss, so it is wise for new parents to make sure they have enough in the bank to cover five to six months’ worth of expenses. Knowing there’s enough in the kitty to cover living expenses while rebounding will make any challenge easier to overcome.
6. Retirement Planning
Though it may seem counter-intuitive, the other item that is critical for new parents is retirement planning. While there are many ways to finance a college education, there isn’t a bank anywhere that will lend you money for retirement. By planning for their own future financial stability, new parents are taking important steps to ensure that they don’t become a burden to their child.
While estate planning may not be as fun as picking out stuffed animals or adorable baby clothes, it’s something that will provide a much longer-term reward. New parents naturally want to do whatever they can to ensure their kids’ safety, comfort, and financial stability – and being proactive and creating a plan is one of the best things they can do to work toward this goal.
If you need help preparing or reviewing your plan, contact our estate planning attorneys at 860-236-7673.