Being a young parent is a time of excitement, chaos, but most importantly, it is a time of new responsibilities. One vital responsibility of a parent is to ensure that your children are provided for in the event of your unexpected death or incapacitation.
Many parents believe that they are too young to think about estate planning, they have many healthy years ahead, or that they don’t have enough assets to bother with an estate plan. Allow me to put particular emphasis on this next statement:
IF YOU HAVE CHILDREN, YOU NEED AN ESTATE PLAN. PERIOD.
Although every parent wants what is best for their children, many young parents overlook the importance of preparing an estate plan. In fact, these measures can be more critical for parents of young children than anyone else. Some fundamental issues young parents should consider include:
Many young parents are often just beginning their careers and haven’t accumulated the same wealth, assets and liabilities that older parents have. However, for most young parents, creating a will is less about passing down assets and more about naming a guardian for their kids. The guardian you name in your will is the person who would take over if both you and the other parent are unable to raise your children. With the frequency in which both parents travel together, driving for instance, this situation is more likely than you may think.
If your will clearly names a guardian, the local court would appoint the person you nominated in your will, absent a serious issue with that person (ex: criminal record). You can also name different guardians for different children if you wish.
However, if you don’t have a will, or did not name a guardian in your will, the court would have to choose someone without any guidance from you. The common choice is a family member. But what if you don’t want certain family members to raise your children? Or if you would prefer that a close friend, who has a good relationship with your kids, step up as guardian? The court would have no way of knowing your true wishes.
Writing a simple will can be easy, quick, and inexpensive. But if you fail to plan for such an eventuality, state law requires a probate court guardianship for your children and their money. The court decides and controls who will parent your children and control the money you leave for them. Because this is a probate proceeding, it carries all the excess baggage of probate.
If you were to pass away suddenly due to an illness or accident, would your family be able to maintain their quality of life without your income? Could they pay the mortgage? What about any medical bills you left behind? Unfortunately, the majority of people would answer these questions “no.” This is why it of utmost importance to have sufficient life insurance in place when you have a family that relies on you. As your family grows, and your expenses inevitably, you must continue to revisit your coverage to make sure that it matches the current financial obligations of your family.
Although this step is more of a financial planning task than a legal one, it is wise to address when you are preparing for the care of your children if you are unable to. Securing a life insurance policy that will substitute your income for a couple of years is a great way to ensure that your family has quick access to funds to aid in their support.
Keep in mind that it is not advisable to name your minor child as a primary beneficiary. Typically, each spouse will name the other as the primary beneficiary of the life insurance policy with the child(ren) named as alternates. If the child is named the primary beneficiary, the life insurance proceeds will need to be paid to a court-appointed guardian to represent the minor’s financial interest. This guardianship would continue until the child reached 18 years old. But you are a smart cookie and already have a guardian named in your will like we advised your earlier, right?
The downside is that guardianships tend to be costly. Any time there is a court process (such as establishing a guardianship) a lawyer is needed, court costs are incurred, and the guardian gets paid for their time. All of these expenses can quickly deplete the guardianship assets (i.e. the life insurance proceeds).
For many young parents, a testamentary trust is a more suitable option. A testamentary trust is created at your time of death and can be a crucial part of your estate plan. If you name the testamentary trust as your alternate beneficiary, versus naming your minor child, the proceeds will be distributed to the Trustee and court involvement can be avoided.
As you have probably noticed, this area of law can be very confusing as there are numerous options to choose from to ensure your family is taken care. Although it is common that young parents know to purchase life insurance, it is rare that they have coordinated that policy with their assets and estate plan. Let the experienced attorneys at Eldredge and Davis find the best option for you and your growing family.
One last simple, and free, step you can take is to name beneficiaries for your retirement accounts. These accounts will include any IRA or 401(k) account that you own. All you need to do is fill out the beneficiary form provided by your employer or the account representative. This is not written in stone. If you want to change it later, you can just fill out and submit a new form. By naming a beneficiary, the funds in the account to go directly to the person(s) you name, without probate. That will save your family the hassle and expense of probate court proceedings.
Retirement planning is a natural extension of estate planning, so its never too early to start preparing for your golden years. If you have turned on a television or computer lately, you are probably aware of the government’s uncertainty about funding retirement programs in the future. Even though retirement may seem like miles down the road, it is your responsibility to be proactive about being prepared when the time comes.
A good estate planning attorney can help you get your legal documents in order, and refer you to a good investment advisor and/or a financial planner to help you with the financial aspects of planning for retirement.
Having children can complicate your life in many exciting and interesting ways; and their effect on your plans for the future are no exception. We understand that estate planning can seem overwhelming, even in the simplest of circumstances. But, it’s especially important to get the ball rolling when you have young children, even when you barely have time to shower and brush your teeth. Fortunately, the process doesn’t have to be complex and you don’t have to go it alone.
The best way to protect your family may differ depending on the age of your children, your financial goals, whether you are a single parent or a two-parent family, what type of assets you have and an array of other factors. The experienced estate planning attorneys at Eldredge and Davis can explain all of your options, guide you through the process, help to create the comprehensive estate plan that is right for your family.