Young Families and Estate Planning: Five Considerations for Parents
They are the conversations no parent wants to have, and yet they are incredibly consequential.
Six in ten adults don’t have a will in place. For couples with young children, a will designates a guardian to care for your children should you and your spouse pass away. Without a will, it is up to the courts to decide who will care for the children, and those decisions may not be the best for your family. It is also important to take the steps to ensure if they will be financially secure. Proper titling of assets and designations in the will can direct personal property exactly as you wish, so your children (and their caregivers) may never have to worry about a financial burden.
Again, these are difficult conversations to have, but planning ahead means you can ensure your wishes are met if the worst should happen, and you can begin by asking yourself five important questions.
1. Who will become the primary caregiver for my children?
Most parents would agree, there is no question more important than this one. They might also agree it’s one of the most difficult to answer. Choosing a guardian you trust is an emotional decision, and parents consider a multitude of factors. These questions may help you as you consider your options:
· Will the person give your children the life you want for them?
· Is the person physically able to care for your kids?
· Do they live close by? If not, would they consider relocation?
· Are this person’s finances and relationships stable?
Forcing yourself through this process is emotionally taxing, but it can provide peace of mind if something should happen to you and your spouse.
2. Do we have enough life insurance?
One of the most important benefits of having life insurance is that it can give your children financial security if you are no longer present to do so. It means they can still live the lives of their dreams and avoid the financial stress that comes with the loss of parents who failed to adequately plan. They can attend college, avoid massive debt, and enjoy a comfortable standard of living.
If you already have life insurance, ask yourself whether it’s enough. It’s also important to know whether you have the best type of insurance policy for your family’s needs. A financial advisor can guide you through the multitude of options and assist with naming a beneficiary in the event your children are minors.
3. Have you created a trust?
Estate planning specifically details your preferences of the division of your assets, and when these distributions can occur. It is essential to have properly drafted legal documents in place so that these decisions won’t be left to the courts. A trust can be a useful tool for specifying when assets should flow to your minor children in the event of your death.
What many people fail to realize is that your children’s guardian won’t automatically be granted the use of inheritance money to provide for them. By default, the court system would have control over inheritance assets until your children reach either 18 or 21 (depending on the state). Once a child reaches those ages, the funds are released to their name. A trust allows you more control over this process. You will be able to lay out a plan for the management of the inheritance funds when distributions to your children will take place, and for what purpose.
4. Who do you want to manage your assets?
It may not feel like you’re particularly asset-rich day to day, but most families accumulate a house, multiple vehicles, retirement accounts, insurance policies, and college savings. Naturally, you will want each of these to be properly managed and distributed when you pass away, which is why it is integral to select a competent executor for your estate. This is the individual who will carry out your final wishes, so they should be someone you trust entirely. Many people choose a sibling, older family member, or long-time friend.
5. Who do I want to make medical decisions on my behalf if I’m unable to myself?
The focus of estate planning for most people is centered around the “what ifs” following death. However, it’s equally important to plan ahead for situations where you become sick or injured to the extent you cannot make decisions for yourself. Consider a health care directive and a durable power of attorney to ensure someone you trust will manage your care and your money if you can’t do so yourself. Laws vary across the states, but usually, it is your spouse who will make medical decisions on your behalf. We recommend having an attorney put all health care directives in writing, and revisit these decisions often.
Though you and your spouse may disagree on some of these decisions, it is important to get some sort of planning in place. If you want to avoid the courts making decisions for your family and ensure your specific wishes are met instead, creating an estate plan and reviewing it annually and when major life events occur will help find some common ground over time.
Though no parent wants to imagine their young children left in the care of others, estate planning offers the best way to carry out the plans you have for your family if you should pass away unexpectedly. Take the time to ask yourself the above questions and determine a plan that provides you with peace of mind.