5 Estate & Financial Planning Tips for Parents of Young Children
As parents, we strive to provide our children with a secure and prosperous future. But what happens to your money and assets if the unexpected occurs? How can you ensure that your child's financial well-being remains intact, even if you're not around to oversee it? In this blog post, we'll explore the best way to protect money and assets for a minor child in case of your death through thoughtful estate planning.
1. Create a Will
The foundation of any estate plan is a well-drafted will. In it, you can specify your wishes regarding the distribution of your assets, including those intended for your minor child. Be sure to name a trusted guardian who will care for your child and manage their finances. Keep in mind that while a will outlines your intentions, it still needs to go through the probate process, which can be time-consuming and costly.
2. Get Life Insurance.
Unless you have a stash of multiple millions of dollars in liquid assets, you should probably get some life insurance! Life insurance ensures that your loved ones can maintain their quality of life, cover daily living expenses, and achieve important life goals in the case that upon your death, they lose a stream of income or the caretaker. A simple 20 year term policy should work for most parents of young children, but there are other insurance products to consider, especially if you are a business owner or are looking for a more robust financial savings plan.
3. Establish a Trust
For more control and flexibility over how your child's finances are managed, consider setting up a trust. A trust allows you to appoint a trustee (who can be a different person than the guardian) responsible for managing the assets and ensuring they are used for your child's benefit. You can specify conditions for distribution, such as funding education, covering medical expenses, or providing support at certain ages or life milestones. Trusts bypass probate, ensuring a smoother transition of assets. It also avoids having to begin a guardianship proceeding and court involvement over the management of the assets until the child reaches majority age (or another age you determine). There are two primary types of trusts to consider: testamentary trusts and living trusts. A testamentary trust is created within your will and becomes effective upon your death. A living trust, on the other hand, is established while you're still alive and can be modified as circumstances change. Living trusts are particularly useful if you want to manage assets for your child even if you become incapacitated.
4. Designate Beneficiaries and Contingencies
In addition to establishing a trust, ensure that your life insurance policies, retirement accounts, and other financial assets have designated beneficiaries. Name your child as the primary beneficiary, and if they're a minor, name your trust as beneficiary and discuss your wishes with your named trustee. Consider adding contingent beneficiaries in case something happens to both you and the primary beneficiary.
5. Have a Financial Partner
Make sure your spouse or co-parent "knows where to look" if something were to happen to you. This is especially true if one person does the majority of financial management for the family. Let your partner know where your assets are held and who to call in case something were to happen to you. Also, make sure your partner knows the passwords for online banking and financial applications. If you are married, make sure at least one checking account is held jointly with rights of survivorship so there is easy and quick access to cash.
Life changes, and so should your estate plan. Marriage, divorce, the birth of additional children, changes in financial circumstances, or alterations in your child's needs may necessitate updates to your plan. It's essential to review and adjust your estate plan periodically to reflect your evolving situation and intentions accurately.
Protecting your child's financial future in the event of your untimely passing requires thoughtful estate planning. By creating a will, establishing a trust, designating beneficiaries, and seeking legal guidance, you can ensure that your child's financial needs are met, providing peace of mind for you and a secure foundation for their future. Call Hogan Law Office, P.C. at (516) 274-3250 to schedule an appointment.