The feeling of being a new parent is exhilarating, a little scary, and often very tiring – I know, I did it twice. I still remember walking out of the hospital when my son was born thinking, “That’s it? They really just let me walk out the door and go home with him?” Along with these feelings come new worries – what will your family do if something happens to you? Or god forbid, what happens to your new baby if something happens to both you and your spouse? Planning for these concerns is what this article is all about.
There are a number of important estate planning matters that all new parents should address. I’ve highlighted a few items below that any basic estate plan for new parents should address. Obviously, some of the more unique or complicated situations might require a more complex plan and I’ve highlighted a few examples of those situations below as well.
Who will care for your child if you and your spouse pass away?
A new baby means the responsibility to care and provide for that baby – regardless of what happens to you. Parents should absolutely make sure they have a will in place that designates a guardian for their child should they both pass away. Parents should carefully consider whom they assign the responsibility to raise their child. You should review the eligibility of the person you designate to serve as a guardian. You should also consider their ability to fulfill the responsibility of raising your child, then consider and designate alternative guardians.
One consideration that often goes overlooked is financial ability. How will you make sure the guardian you designate has the financial ability to provide for your children?
How would your family handle the financial burden of losing a spouse?
The loss of a parent is not just a traumatic emotional event, it can also be a traumatic financial event. New parents should evaluate their income and develop a plan to provide financial security for a surviving spouse should either one of them pass away. This likely includes life insurance. You should evaluate what type of life insurance is best for your situation. How much insurance do you need for each parent?
Remember – the surviving parent isn’t just replacing lost income. The surviving parent will face increased child care costs, college costs, and medical expenses. Health insurance costs may increase if the deceased spouse carried insurance through his or her employer. Your financial planning should address not only lost wages but also other economic and non-economic contributions the deceased spouse provided that might increase the burden of caring for your surviving family members.
Who will you designate as executor to probate your will and carry out your final wishes?
It is common for spouses to designate each other as their respective executors. But that may not be the best choice. If your spouse survives you, he or she will be dealing with both the emotional toll of your loss as well as trying to heal the emotional impact on your children. That is a heavy burden. Your spouse may not need the added burden of administrating and settling your estate. You should carefully consider whom you designate as executor, whether they are qualified, what your other options might be, and be sure to designate alternative executors if the first cannot or does not serve.
Are your retirement and other POD accounts are consistent with your estate plan?
Not all assets pass under your will or through the probate process. For example, you may designate (or may have previously designated) a beneficiary on your retirement accounts who is entitled to those proceeds upon your death. Many bank accounts also allow for POD designations. You should make sure that any designations you make are consistent with your estate plan. You should consider how those non-probate assets should be distributed to best care for your family and children upon your passing.
Do you need a trust for your children?
If both parents pass away, what happens to your assets? Are they distributed directly to your children? Are they put under the care of a guardian of your child’s estate appointed by a court? Would you expect your child to be capable of handling what could be a significant financial windfall at the age of 18? Or should they be held in trust for your child?
You should consider how and when you want your children to have access to any assets you leave to them, especially if there are significant financial assets. You should also carefully consider whom you would want to manage and care for those assets until your children are old enough to manage their financial affairs themselves. A trust allows you to do all of these things as well as provide rules for when and how trust assets will be spent caring for your children.
Do you have a plan that addresses your incapacity as well?
Death is not the only event your estate plan should address. What happens if you become incapacitated and can no longer work? Disability insurance is one idea to address the financial burden of lost wages. What about increased medical care? Child Care? Insurance? What about managing your assets, property, or business?
Do you have a durable power of attorney in place to manage your property and affairs? Do you have a medical power of attorney in place to designate whom you want making medical decisions for you if you become incapacitated? Do you have an advanced directive in place to respect your wishes regarding end of life care?
If you own your own business, do you have a succession plan in place should you be mentally or physically unable to run the company?
Are there special circumstances that require more thoughtful planning?
The basic issues are fairly straightforward but parents should always consider any special circumstances that might warrant more careful planning. For example, does your child have special needs that qualify him or her for government benefits? If so, a special needs trust may be necessary to make sure that your child will not lose those benefits.
Unmarried parents present unique issues for consideration. Do you or your spouse have significant debts that could impact your ability to leave sufficient financial resources for your spouse or children? Is there a family business that must be considered and care taken to ensure its survival? Is there a possibility that you might receive a significant inheritance yourself?
All of these are special circumstances that warrant additional care and thought when developing your estate plan.