If you recently welcomed a baby into your family, congratulations! Now it is more important than ever to ensure that you have a comprehensive estate plan in place. It’s also a great time to engage in a financial check-up. When you think about estate planning for new parents, you probably think about the need to name a guardian for the child in case both of his or her parents die. Naming a guardian is one key element of estate planning to protect your children, but there are more issues that a comprehensive estate plan covers.
Execute a Will that Names a Guardian and Creates a Trust for Minor Beneficiaries of a Trust
The only way to ensure that the person you choose will take care of your baby if you and your partner die is to execute a will. Every state has its own rules about how to execute wills, such as how many witnesses must sign the document and whether it must be notarized. Be sure to consult an attorney in your state to make sure that you follow all relevant rules.
In your will, you have the opportunity to name the person or people who will be named guardians of your children if both you and your partner die while the children are under the age of 18. This is a consequential decision and one that will likely take some time to make. Here are some factors to consider when picking a guardian:
- You will want to name a primary guardian and at least one contingent guardian. If the primary guardian is deceased or for some other reason unable to serve as guardian, the contingent guardian will serve.
- Carefully consider whether you want to name one or both members of a couple to be the guardian(s). You may feel like your sister and brother-in-law would make a good home for your child, but consider how you would feel if your sister predeceased you and your brother-in-law would be the sole guardian.
- You may choose one person as your child’s guardian and a different person to handle money that is left for your child in trust. You may feel that the person who is best to raise your child is not the best choice to handle money. The guardian and trustee will work together to make sure that all of your child’s needs are met.
In addition to naming a guardian for your child, the will is your chance to direct your assets to certain beneficiaries of a trust and have someone to manage your money. Many parents choose to create trust within the will for property inherited by your child. Many parents feel that even at 18 a child is not able to handle an inheritance directly. In your will you can customize when a child gets access to inherited funds.
Update your Beneficiaries on your Retirement Accounts
Funds that you have in a retirement account, like a 401(k) or an IRA, do not pass under your will. Instead, they are contracts and you have the opportunity to designate who will inherit the funds if you die. After the birth of a baby, you should ask the institution that holds your retirement funds to see your beneficiary designations. If you’d like your retirement funds to go to your baby, think about naming the trust for minor children in your will as the beneficiary. That way the funds will be managed by the person you named as trustee.
Put in Place a Durable General Power of Attorney
A durable general power of attorney allows you to name someone to manage your money and handle your financial affairs if you become unable to do so yourself. Your agent under your power of attorney can begin to act as soon as you become incapacitated, making sure that there is never a time when needed to take care of your child are inaccessible.
Execute a Living Will and/or Health Care Power of Attorney
No estate plan looking to protect your baby’s future is complete without a living will and/or health care power of attorney. As a parent, one of your most important jobs is taking care of yourself so that you can be there for your child. A health care power of attorney allows you to name an agent to make medical decisions for you if you are too sick to make decisions for yourself. A living will gives you the opportunity to consider certain serious, life-threatening conditions and make known what treatment you would like in those situations.
Purchase Life Insurance
Each parent should have a life insurance policy to ensure that there are sufficient funds in a financial plan to raise their child if they pass away. As a mother, I understand that the first few months after you welcome home a new member of the family can be overwhelming. As difficult as it may be, it is worth carving out some time to take care of these matters now because they help secure your baby’s future.