By Marc C. Shaffer
My wife recently gave birth to our first child, a baby boy. Not only was he an infertility miracle in the making (that’s another financial story for another day!), but his birth also created the need for estate planning updates across the board.
Caring.com’s 2021 Wills and Estate Planning Study showed a promising statistic for young parents: In 2021, 18-34 year-olds are, for the first time, more likely to have a will than 35 – 54 year-olds. Bringing a child into the world means you’re responsible not just for keeping them alive and healthy each day, but for setting them up for success in the event that you’re not around to care for them any time in the future, which is where a strong estate plan comes into play. Here are three main steps to help you get started:
1. Create or Update Your Will
Your Will is going to be the place you spell out the details for your child’s financial future. You’ll want to make sure they are added as a beneficiary of your estate and appoint someone as executor. In your Will, be specific about who inherits what, when and how. These instructions will require more detail if you have multiple children or beneficiaries. You don’t want to assume your estate will be passed directly to a surviving spouse or children, as some states have laws or guidelines that could differ from your wishes.
You will also name a guardian for your child, a decision that shouldn’t be made lightly. For parents, this may be one of the most important reasons for having a Will. Naming a guardian may be a topic you start thinking about before you have children or one to consider during the pregnancy or adoption phase.
Will the child have a trust? A trust can help ensure security for your child’s future, and could be used by a guardian to help manage the child’s inheritance, depending on their age. A trust allows you to have more control over the assets used and disbursement in the future.
2. Update Beneficiaries on Your Accounts
Retirement accounts such as Individual Retirement Accounts (IRA) and 401(k) accounts can have beneficiaries listed, along with other investment accounts and life insurance policies. You may have listed your spouse as the primary beneficiary, but you could add your child as a secondary beneficiary, or primary if you don’t have a spouse or prefer the child be the primary. While these accounts may be listed as an asset in your Will, naming a beneficiary on accounts of this nature could help make the transfer easier.
3. Review or Purchase Life Insurance
If you don’t currently have life insurance, now is a great time to look into coverage. If you already have life insurance, you may want to increase the amount now that there is another family member to cover. Ideally, if there are two parents, you would want each to be covered and at an amount that the surviving caregiver could cover the loss of the other. For example, if a stay-at-home parent were to pass away, the working parent would have to cover the cost of care for the child, whether that means hiring a caregiver or taking a few years off of work to stay with the child. It should also be considered to insure against the loss of income from any working parent.
New parents have so much on their minds, so knowing your estate is in order and well positioned to protect your family could help bring a little peace of mind to an exciting but chaotic new stage of life.
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The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Originally published in the KC Star newspaper. Published for the blog on February 27, 2022 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.
