With the joy of welcoming a new family member into the world, comes the importance of planning for the financial future of your family. Creating a will is often the first thing that comes to mind when people think about estate planning. Although that is a start, there’s much more to building a safety net in case you or your spouse were to pass away. One of the hardest parts of estate planning is knowing where to start. So, we have a few suggestions for you.
1. Determine who the guardian of your children should be
This is not a decision anyone wants to think about. But, it is extremely important in the unlikely event that you and your spouse were to pass away. The guardian is the person specified in your will to care for your children. This is a difficult decision to make, so here are a few factors to consider to narrow the decision:
Age of the person- Are they similar in age? Will they likely be alive until my children reach the age of 18? Will they want to parent at this age?
Where they live - Are they in an area I would want my children to live? What schools are around this area? Is it important that they will be close to family and friends?
Lifestyle - What is their parenting style like? What is their religion? Do they have kids of their own? What is their financial stability like?
Emotional Factors - Will they be able to handle taking care of more children?
These are important questions to think about as you make your decision. Our advice to you is that you speak with the guardian to ensure that this is something they are willing to do. Choosing a guardian is hard, but this is a worst case scenario that hopefully will never happen. You will never find the perfect solution, because the perfect guardian for your child is you. Make the best decision that you can and revisit it on a regular basis to make sure there are no better options.
2. Consider adding age-based restrictions onto your trust
As a new parent, looking at estate planning is a good time to update or set up a trust. One of the advantages of a trust is that you control how the money in the trust is dispersed to the beneficiaries listed. You can have it done in a lump sum, or you can have it parceled out over a period of several years. The latter will make sure that the money isn’t dispersed from the trust and then spent quickly by the beneficiary, which can be especially important with young adult children, whom you may not entirely trust in handling the large sum of money they would be receiving this early in life.
One of the common restrictions that is placed on a trust is to allow the child ⅓ of their share when they are a specific age, another ⅓ at the next age and the final ⅓ at another age. For example, if you wanted your child to start receiving funds at 25, they could receive their next portion at 30, and their final portion at 35. That will allow you to delay turning the assets of the trust over to your child until they reach an age at which you believe they will be financially responsible.
3. Evaluate financial accounts
Creating an estate plan is a great time to look at all of your accounts and make sure the correct beneficiaries are listed. You can update beneficiary information as needed, perhaps adding children as contingent beneficiaries to your spouse.
4. Factor in health decisions
Most people do not consider a durable power of attorney as a part of their estate plan. However, if you were to become ill or get in an accident and could no longer make decisions, it is important that you have these documents in place. There is a power of attorney for both financial decisions and healthcare decisions. You do not have to have the same person be responsible for both decisions, but you can if you choose. They will be responsible for taking care of these decisions in the event that you are unable. Often, a spouse is listed as the power of attorney, but we suggest that you appoint a successor power of attorney in case both you and your spouse were unable to make decisions.
5. Organize assets and document plans
Although not a necessity, a letter of intent is a valuable addition to any comprehensive estate plan. It helps define details like what you would like to do with certain assets after your death, or the details of your funeral. It’s an easy way to outline specifics. It’s helpful to go through your belongings to ensure that anything valuable gets left in your will to the appropriate people. Along with that, ensure that your trustee and executor are aware of your intentions, the contacts of your financial advisor, accountant, and attorney, and where your estate plan is located.
If any of these aspects seem overwhelming or confusing, we are here to help you. Please contact us if you would like help ensuring that your estate plan is fully prepared.