Congratulations! You’re having a new baby. What an exciting time for new parents. The many months of anticipation are now over, and you’ve arrived home with your new and precious cargo. Recognize and acknowledge that you have been entrusted with a wonderful but sometimes daunting responsibility and that this can be a stressful time for parents.
As baseball great, Yogi Berra, once said “it is difficult to make predictions, especially about the future.” Yet, that is the essence of estate planning – making predictions about the future. While your dreams and aspirations for a bright and wonderful future should be your primary focus, as new parents you also have the responsibility of planning for the unlikely possibility of your premature death or incapacity.
While the thought of leaving a child without a parent can be depressing, it’s still your responsibility to make sure your child is well provided for, even in the event something unforeseen happens to you. As a newly minted parent, now is the time to review your Estate Plan to ensure everything is in place to provide for your new child and your family.
The first area to address is that of your child’s Guardian.
A guardianship is a legal order that gives someone other than you as the child’s parent the right to make child care decisions and take care of the child. The laws governing guardianship differ between states, but only a court can grant someone guardianship rights for a child. Who is your choice to take care of your new baby should something happen to you? While that is a simple question, answering it can be difficult. If you don’t nominate a guardian, the Court will be flying blind when they appoint someone to care for your child personally and financially and it may not be who you’d want. Think about who is best suited for caring for your child and ask yourself if that person is up to the task. Remember, while you get to state your recommendation for your choice for Guardian of your child the Court makes the ultimate decision so don’t choose someone the court would not approve such as someone with a history of alcohol or drug abuse or a criminal record.
There are two types of Guardians.
1. Guardians of the estate
2. Guardians of the person
The Guardian of the Person is the individual(s) who become the substitute parent(s) for your child if both you and your spouse become incapacitated or die. They are charged with the responsibility of determining where the child will live, their education, and medical care. They are also responsible for the child’s overall environment, including their lifestyle, religious beliefs, values and parenting style. Depending on state law it may be necessary to get Court approval to move the child out of your resident state. Appointment of the Guardian of the Person is made by the Court by its determination of what is in the best interests of the child, but your recommendation will carry great weight with the Court.
The Guardian of the Estate manages the money or assets held by a child on the child’s behalf and in the child’s best interests. The Primary duty is to treat the child’s assets with care and manage them honestly and responsibility. The Guardian of the Estate pays the debts and expenses of the child including general care and provision, medical care and education. The Guardian of the Estate is answerable to the Court and required to make an inventory of estate assets including their values and locations. They are also required to file annual or more frequent reports showing the value of the estate, the way the assets are invested and the income and expenses of the estate. Management of the estate is to be handled in a reasonable and conservative manner so no risky investments are allowed.
While the Guardian of the Person and the Guardian of the estate can be the same individual(s) they need not be. If you choose different people for those roles they will have to work together. This will require good communication skills, the ability to collaborate and a willingness to work together in the best interest of your child. You may wish to consider:
• Do the individuals have an existing relationship or will their relationship be limited to serving as the child’s guardians?
• If they have a current relationship, how do they get along? Do they share values? Do they have a shared vision for the child?
• If they don’t have a current relationship, do you think they would work well together?
• Would they each be able to understand both the authority and the limitations of his or her role, and respect the other’s role?
When deciding whether to name separate Guardians of the Person and the Estate of your child consider the skill sets of your potential choices. For example, your CPA sister-in-law may be a great pick as the Guardian of the Estate, but her single lifestyle and frequent travel may make her a poor choice for the Guardian of the Person.
If this is a second or third child, you may wish to revisit the topic with your potential guardians and ensure that they are prepared to now care for multiple children. If not, you need to revisit and revise existing guardianship nominations.
Should I discuss all of this with the potential guardians?
It is typically a good idea to discuss your selection with the person(s) you are considering serving as guardian. There may be reasons unknown to you why they would be unwilling or unable to serve and it is better to find out early while you can still make another choice. It may also be advisable to name one or more alternates.
Your Last Will and Testament is the legal document used to nominate your child’s guardian so even if you have decided to use a Revocable Living Trust you still need a Will.
Create or Update a Revocable Living Trust
A Revocable Living Trust is one of the best tools for parents to control the inheritance for your child avoiding the expensive, time-consuming and public probate process. Your Revocable Living Trust document states who gets the property when the trust creator dies, the ages at which principal distribution are permitted, and what type of expenditures the Trustee can make on behalf of your younger beneficiaries. You and your spouse are usually the initial Trustees and upon death, the successor trustee or trustees that you choose take over. Revocable Living Trusts can be amended or altered in response to life’s changes, which makes it a flexible and versatile tool for providing for your child’s future.
Estate Planning Documents Create or Update.
When you have a new baby, it’s time to review all your estate planning documents to confirm they’re up-to-date. If you haven’t done any estate planning, now is the time to put your affairs in order! With the new baby here, it’s time to create or update:
Revocable Living Trusts
Financial Powers of Attorney
Health Care Powers of Attorney
Advance Health Care Directives/Living Wills
Digital Asset Inventory
and other important legal documents. Safeguard your family’s security by implementing a comprehensive estate plan. See how IEDS.online can help.
Buy or Increase Your Life Insurance Policies
Life insurance is a great idea when you’re married, and it’s indispensable when you have a child. Life insurance gives you the ability to provide your family with essential financial resources should anything unforeseen should happen to you and/or your spouse. Review your life insurance coverage amounts with your new baby in consideration. While it might be tempting to have a specific dollar amount of insurance in mind, you may find it helpful to tie your coverage amount to a specific goal like paying off a mortgage, paying for college or providing a replacement income in the event you die unexpectedly. For a young family just starting out, Term Insurance can provide significant coverage for a small premium.
Consider insuring both parents even if only one works outside the home. The costs of replacing the service of the stay at home parent can be considerable. If both parents work and contribute to household expenses and child care, the loss of that second income could be financially devastating. Now may be the perfect time to buy more and make sure that your Revocable Living Trust is listed as the beneficiary.
Designate Beneficiaries for Retirement Accounts
Many people neglect to name beneficiaries for retirement accounts, or to update beneficiaries when life changes occur. Revisit your retirement accounts, and make sure your spouse, a trust, or possibly even your children are listed as a beneficiary of your retirement account. Consider using an Qualified Retirement Asset Trust to provide distribution instructions to protect a tax-deferred or tax-free account.
Consider Trustees for Minor Children
Leaving financial resources and property to minor children is typically handled through a Revocable Living Trust. To administer the Trust, though, you must appoint a succession of individuals who you know to be honest, responsible, and good with spending decisions who you trust to administer a trust for your minor child. Talk with this person or persons before nominating them, and make sure they understand your wishes and plans in establishing the trust.
Use a §529 Plan or Other Investment Accounts to Fund Your Child’s Education
The birth of the child is the perfect time to start making contributions to §529 plans or other investment accounts. College costs keep rising; annual tuition today averages anywhere from $20,000 for in-state colleges to $70,000 for private universities, and those numbers have been climbing at a stunning rate. Now is the time to start making contributions to accounts and investment plans to assure your child gets the education he or she desires. There are many choices available, although some of the “easier” choices may have some significant disadvantages. Discussing options with an experienced financial professional before you invest can assist greatly.
Planning for your new baby’s future gives you the peace of mind of knowing that he or she will be well provided for no matter what happens to you. Take time to confirm your legal affairs are in order and to guarantee that your child will have both the financial resources and personal support and guidance he or she needs to get a great start in life.