Estate planning basics for new parents
There’s plenty to plan for as you welcome a new member into your family, but in all the excitement of bringing your baby home, don’t forget about the practical aspects of planning for this new addition.
There are a few necessary estate planning steps that every new parent should take.
Have a will in place that designates a guardian and a trustee
If you don’t already have a basic will in place, now is the time to get started. When it comes to planning for your child’s life in the event that you’re no longer around to care for them, the two most important roles to establish are the guardian and trustee. Putting these documents in place is a tremendous gift to your growing family.
A guardian is the person your child will live with. This person is responsible for the overall well-being of your child, and manages day-to-day activities much in the way a parent would. While many families name godparents for their children, it’s important to go through the appropriate channels to legally name a guardian. Without an appointed guardian, the decision of who will raise your child is left entirely to the court system. A trustee should also be named to manage financial matters, including paying bills, making investments, and filing taxes on behalf of your child.
Determine a durable power of attorney for both health care and finances
The last thing you want to think about with a new baby in the house is not being able to make decisions for yourself, but it’s best to be prepared and authorize the right people to make these decisions while you can.
A DPOA for health care makes medical decisions for you when you can’t make them for yourself. This should be someone with whom you can openly discuss your wishes and who will communicate them if you’re not physically or mentally able to do so. A DPOA for finances can access your assets, which can be a huge relief to your family if they need to access your accounts to pay important bills. Without a DPOA in place, it might take a court order to give your family access to your funds.
Update your life insurance policy
First-time parents aren’t always growing their savings quickly in the early years of having children, so life insurance can play an important role in ensuring your child is supported financially if something were to happen to you. As a general rule of thumb, think about a plan that would replace your income for at least a few years if you weren’t there to provide that support for your family.
Review beneficiaries on all assets
You’ve already updated your life insurance policy, but consider other accounts like 401(k)s and IRAs that can be updated to include your spouse and/or child as a beneficiary – for example, consider naming a trust as a backup beneficiary to your spouse. Young people often designate siblings or close friends as beneficiaries when they open accounts, so be sure to review these accounts periodically as your priorities change over time.