When a couple becomes parents, it’s often a great time for them to start working on an estate plan. Technically, anyone can make a plan after they turn 18. But many people don’t think about it until some sort of life event occurs that shows them how important it may be. The birth of a child is certainly one of those events.
What should new parents do when they make an estate plan? Below are a few things they’ll want to consider and some tips that may help.
Update any beneficiary designations
One thing to remember is that retirement plans, life insurance policies and even some bank accounts need to be passed along via beneficiary designations. Parents may want to update these designations to stipulate that their assets should go to their new child. This is also very important to do for something like life insurance if parents have a second child and want to ensure that the money gets split up between the two.
Pick a guardian
Parents also need to consider what would happen if they passed away unexpectedly. They can use their estate plan to choose a guardian who could raise their child to adulthood. They’ll want to pick someone who is financially able to do so, who has a similar parenting style and who is willing to take on that role. Many parents are tempted to pick their own parents – their child’s grandparents – but this may not be the best idea due to age. Either way, it’s important for parents to select someone or the state will end up making this life-altering decision on their behalf, should the worst happen.
Set up a trust
If parents of a minor pass away, their child is not allowed to own assets outright. That child may only be a few months or a few years old. As such, parents can establish trusts that will hold their assets. If necessary, a trustee can then use these assets to help pay for the childcare and upbringing. Any remaining balance could pass to the child when they turn 18.
These are a few of the key areas that parents need to keep in mind. It’s important to have a comprehensive estate plan in place to avoid having the state make decisions on behalf of a child in the event that their parents pass away.
