When you are expecting a new child, you are likely readying the nursery and making your birth plan. Your financial concerns regarding your child may center around how to pay for childcare and diapers or even saving for college.
You likely are not thinking that there is the possibility you will pass on before your child is grown. While this topic may seem morbid to contemplate, you can help your child should the unthinkable happen by having a well-rounded estate plan in place.
Naming a guardian and trustee in your will
If you have a will or are contemplating making one, you likely are only thinking about who will inherit your assets. While these are good decisions to make, if you are a parent, you will also want to name a guardian and trustee in your will.
A guardian is appointed by the court if you and your child’s other parent pass away before your child is grown. You can appoint a guardian in your will. A guardian cares for your child and makes daily decisions such as what school your child will attend and when bedtime will be.
Courts will always consider the best interests of the child when appointing a guardian, even one you have named in your will. Still, naming a guardian can give you peace of mind that a person of your choosing will raise your child if you can’t.
A trustee is a person who will take care of your child’s financial needs, such as paying bills, filing taxes, making investments and distributing funds to your child when the time comes. While a guardianship ends when your child reaches age 18, a trustee can continue to manage your child’s finances until your child can do so on their own, for example, in their 30s or 40s.
Setting up a testamentary trust
When you think of naming your child as an heir to your estate, you must keep in mind that minors cannot own property. For this reason, a testamentary trust may be used alongside a traditional will. The appointed trustee can distribute funds for your child’s medical needs, schooling and support. Your guardian or court-appointed trustee can also be appointed as trustee to a testamentary trust if you wish.
Think about life insurance
Life insurance provides financial security for your child should you and your child’s other parent pass away. Just think about how difficult your child’s life could be if you do not have the financial resources in place for them to draw on if they must grow up without you.
When deciding on a life insurance policy, you will have to decide how much your child will need. It is generally better to focus on a “needs-based” amount rather than an “income replacement” amount.
Estate planning is important for new parents
While estate planning is important for adults of any age, it is especially important for new parents. An estate plan you executed before you became pregnant may not address guardians and trustees, and may not provide for your child’s financial needs. An estate planning attorney can be a good resource for new parents who want to take the steps necessary to protect and provide for their children should they pass away.