5 Estate Planning Tips After a New Baby
Having a new baby can be both joyful and overwhelming. Managing sleep schedules, feeding times, and diaper changes can be overwhelming, and it's natural for estate planning to take a backseat in this exciting and busy phase.
However, it's imperative to acknowledge that your sweet little addition has significantly changed your financial landscape. Estate planning is not just about distributing assets after demise; it's about ensuring your child's well-being and security if something were to happen to you. A thorough estate plan can designate guardians for your child in the absence of both parents, provide financial structures such as a trust to manage assets for the child's benefit and ensure a smoother transition of your assets, minimizing potential disputes.
With this in mind, we've put together five estate planning tips that can provide you with some peace of mind, knowing you've taken steps to secure your baby's future.
#1: Update or Create Your Will
Creating or updating your will is the cornerstone of estate planning. A valid will is a legally binding document that ensures your assets are distributed according to your wishes. More importantly, for parents of a newborn, a will is the document where you can name a guardian for your child in the event that both parents pass away before the child reaches adulthood. When selecting a guardian, consider their ability to provide a stable and loving environment and their willingness to take on this significant responsibility.
Though it can be a challenging process, it's essential to have these sometimes uncomfortable discussions to safeguard your child's future. Remember, laws surrounding wills can vary by state, so it's worth seeking advice from a professional estate attorney to ensure your will is legally sound and accurately represents your wishes. Finally, as your circumstances change, it may be necessary to review and revise your will periodically. Having a newborn is a significant event that warrants such a review, ensuring your estate plan aligns with your current situation.
#2: Choose a Guardian for Your Child
Choosing a guardian for your child is one of the most critical decisions you'll make during the estate planning process. This individual or couple will be responsible for raising your child in the unfortunate event that both parents are unable to do so. The guardian you choose should share similar values, have the ability to provide a stable, loving environment, and be capable of taking on the financial and emotional responsibilities of raising a child.
Here are some tips for choosing a guardian:
- Start by listing all potential candidates and evaluate each based on their ability to provide a stable and loving environment, willingness to take on this responsibility, and alignment with your parenting values.
- Consider their financial stability, physical health, and age, as these factors can influence their ability to raise your child.
- Discuss your decision with the potential guardians to ensure they are willing and prepared to assume this role. It's also helpful to name a secondary guardian should your first choice be unable to fulfill this duty.
- Revisit your choice of guardian as circumstances change. The right choice today may not be the right choice five years from now.
It's essential to formalize your choice of guardian in your will. Without a legally documented guardian, the court will decide who will care for your child, which may not align with your wishes. Remember, a will can be updated or revised as circumstances change, so reviewing and updating it periodically is important, especially after significant life events.
#3: Set Up a Trust for Your Child
Creating a trust for your child is a strategic way to manage the assets you leave behind. A trust holds assets on behalf of your child and is managed by a trustee, typically a reliable, trustworthy individual or a financial institution. The trustee is legally obligated to manage these assets according to your instructions for your child's benefit. The advantage of a trust is that it can bypass probate, ensuring immediate access to funds, and can be structured to distribute assets at specific ages or stages in your child's life.
Trusts come in different types, each with its specific benefits:
- Revocable living trusts: This type of trust can be altered, changed, modified, or revoked entirely during your lifetime. It becomes irrevocable upon your death.
- Irrevocable trusts: Once established, this trust cannot be changed or withdrawn without the beneficiary's consent. This type of trust can help avoid estate taxes.
- Testamentary trusts: These trusts are outlined in a will and only come into effect after your death.
- Special needs trusts: Designed for children eligible for government benefits due to disability, this trust allows for additional resources without disqualifying them from the benefits they are entitled to.
Regardless of the type of trust you choose, it is important to ensure it is set up properly and aligns with your wishes for your child’s future. It's recommended that you work with an experienced attorney to guide you through the process and ensure all legal requirements are met.
#4: Purchase Life Insurance
Purchasing life insurance is another vital component of estate planning, especially with a new child in the picture. A life insurance policy can provide the financial means necessary to care for your child's needs in the event of your untimely death. It can replace your income, cover your child's educational expenses, pay off debts, and even help support the day-to-day living costs, ensuring that your child's standard of living is maintained. Several types of life insurance policies are available in the market, including term life, whole life, and universal life insurance, each with unique features and benefits. It's important to evaluate your family's needs and consult with a financial advisor to determine the best type of policy for your situation.
While life insurance can provide significant financial security, selecting the right policy, coverage amount, and beneficiary is crucial.
Here are some things to consider when purchasing life insurance:
- Term life insurance policies are generally more affordable and offer coverage for a specific period, such as 10, 20, or 30 years. If you pass away within this term, your beneficiaries receive the payout. This type of policy might be suitable for parents wanting to cover expenses until their child reaches adulthood or completes their education.
- Whole life or permanent life insurance policies provide coverage for your entire lifetime as long as premiums are paid. They also build cash value over time, which you can borrow against.
- When choosing the coverage amount, consider your current income, your family's living expenses, future education costs, and any outstanding debts.
- Naming your child as the direct beneficiary of the policy is not advisable, as insurance companies generally do not pay death benefits directly to minors. Instead, designate a trusted adult or a trust as the beneficiary.
It's important to note that life insurance needs change as your life evolves. Regular reviews and updates to your policy can ensure it aligns with your family's needs and goals. Keep in mind that the goal is to provide your child with financial stability and security should the worst happen. While the thought of not being there to raise your child is a difficult one, knowing they will be financially taken care of can provide peace of mind.
#5: Keep Your Estate Plan Current
Keeping your estate plan current is critical to ensuring it continues to align with your wishes and adapt to changing circumstances. Life events such as marriage, divorce, the birth of a child, or even a significant change in assets can considerably impact your estate plan. Therefore, it's advisable to revisit your plan regularly, ideally every two to three years or sooner if a significant life event occurs.
Here are some life changes that typically warrant a review of your estate plan:
- Marriage or divorce
- Birth or adoption of a child
- Death of a named guardian, trustee, or executor
- Change in laws affecting your estate
- Significant increase or decrease in the value of your estate
- Purchase or sale of a business
Regular reviews can help ensure that your will, trust, insurance policies, and beneficiary designations align with your current circumstances and wishes. This process allows you to address any changes proactively, ensuring that your plan continues to serve your child's best interests. Ultimately, keeping your estate plan up-to-date helps ensure that your child will be cared for, no matter what the future holds.
Let Scaringi Law Help You Protect Your Child's Future
At Scaringi Law, we understand that estate planning is not just about protecting your assets but about ensuring the future security of your loved ones, especially your children. Our experienced attorneys are well-versed in all aspects of estate planning and are dedicated to guiding you through every step, ensuring your estate plan is tailored to your needs and circumstances. We are committed to providing comprehensive and personalized legal services, from drafting a will to setting up a trust, appointing a guardian, advising on life insurance, and keeping your estate plan up-to-date.
We understand that discussing estate planning can be daunting, especially when you are busy parenting a newborn. But we believe the peace of mind gained from knowing your child is protected no matter what the future holds is well worth the effort. Our team is here to simplify the process, answer your questions, provide expert legal advice, and help you navigate the complexities of estate planning.
Preparing for the future can be a challenging task, but you don't have to do it alone. Let us help you secure the future for your child. Contact us online or call us at (717) 775-7195 to schedule a consultation with one of our skilled estate planning attorneys.