The birth of a new child is an incredibly exciting time, representing joy, excitement and hope. As the parent(s) of a new baby, this happy event should also trigger another thought in your brain: the need to create an estate plan or, if you already have one, review and update your existing plan. There are many facets of estate planning where the addition of a new “bundle of joy” may be impacted and where proper planning can help you protect them even more.
Here are just a few (three, to be specific) of the things you should consider when it comes to your new child and your estate planning:
- If you don't have a plan, get one! Obviously, you hope to spend a nice long period of many decades sharing love, laughter and experiences with your child. But much of estate planning is a case of “expect the best but plan for the worst.” Probably your first instinct as a parent is to protect your new baby. One vital way to protect your child is to make sure that, if you die prematurely, that your child's care and protection is provided for. Your estate plan can do that. As part of your will, you can indicate the person (or people) who you want to serve as a guardian and care for and raise your child until she reaches 18. Because a will is where you indicate this guardian preference for your child, an estate plan for you, as the parent of a minor child, is exceptionally important.
- Make sure that your will and/or living trust are financially structured to protect your child. Chances are you have high expectations for your child. You expect that she'll grow to be a careful, responsible and reliable adult… and she probably will. But, we all remember being 18, right? Expecting an 18-year-old to manage a large amount of wealth in a wholly responsible manner completely on her own is a lot to ask, even of a “good kid.” To ensure that your wealth benefits your child to the fullest extent possible, consider the use of trust planning. With a trust, you can make sure that your child doesn't have to deal with receiving the full distribution immediately upon turning 18. You can dictate the dates of distributions based upon various events, like, for example, college graduation, a 25th birthday or marriage. You can also make sure she has help, as the trust will have a trustee, whom you've named and whom your trust, who will manage the trust assets until they are fully distributed to your child.
- Make certain you've reviewed ALL of your assets. You can engage in careful estate planning, complete with a trust that staggers distributions to your child from age 18 to age 30. However, if you've not made sure to review all of your assets, you could still have a problem. You know that $500,000 life insurance policy with your son's name as the beneficiary? It all goes to him immediately upon his 18th birthday, unless you've planned and taken action. If you change the beneficiary form on that policy to name your son's trust as the beneficiary, instead of him individually, then the entire death benefit goes into the trust and is subject to the same delayed payout schedule as the rest of your assets.
You probably have a million things on your “to do” list right after you've had a new baby. While estate planning may not seem pressing, it is important not to overlook it. There are many areas where prompt and proper estate planning can help you protect your child and give you the peace of mind that comes from knowing that, even you're not around, you are still providing for your child.