What New Parents Need to Know About Estate Planning
New parenthood is a busy and exciting time, and estate planning may not be top of mind. You may not think you have enough wealth to begin estate planning. But now that you have a young child, it is critical that you draw up a will and outline your wishes so that your family’s future is thoroughly planned for and secure.
Use this easy guide to get started:
First, let’s outline the elements of an estate plan (yep, it’s more than just a will!):
- Drafting a will that determines a guardian for your child
- Appointing the executor of your estate
- Establishing a trust
- Naming beneficiaries to your assets and accounts
- Choosing a Power of Attorney
- Outlining Funeral Arrangements
Now, let’s understand each step in more detail:
- Drafting a Will
Your will is the cornerstone document to your estate plan, as it outlines the distribution of assets and, most importantly, names a guardian for your child or children in case of your death. You can draft a will yourself using online resources such as LegalZoom, Nolo, or DoYourOwnWill.com, or work with an experienced attorney to get started. DIY wills allow you to save a little money with your will. However you won’t get the value of a knowledgable attorney who can provide personalized knowledge and guidance to help you draft the best possible will for your needs.
- Choosing the Executor of Your Estate
The Executor of your estate is the person who will ensure that the wishes outlined in your will are fulfilled. This person will oversee the distribution of your assets, ensure that your outstanding debts and tax obligations are taken care of, and represent your interests should there be an audit or dispute among your heirs. Choose someone organized, responsible, and trustworthy for this important role.
- Setting up a Trust
If you are concerned that your beneficiaries may pay a lot in taxes, consider setting up a trust account. Having a trust may also help your heirs avoid the costly and lengthy probate court process.
- Naming Beneficiaries
Assets such as your 401(k), IRA, and life insurance policies should all have at least one beneficiary named. However, be aware that these accounts are subject to income tax, rather than the estate tax that will be applied to other assets. If you want to divide your estate up equally among two or more beneficiaries, these differences in tax liability may mean that a $40,000 IRA account and a $40,000 savings account would pay out in different amounts. To create a sound strategy, consult an estate planning attorney.
- Power of Attorney
The person you name as durable power of attorney will act as your agent should you become incapacitated. This means they will pay your bills, transfer assets, and consult with the court, advisors, and agents on your behalf. Separate from a durable power of attorney is a medical power of attorney, which is the person who would make medical decisions on your behalf. These can be the same person, but do not have to be.
- Making Funeral Arrangements
In the event of your death, making funeral arrangements can be very difficult for grieving loved ones. Writing out your wishes in advance will help alleviate some of that stress and ensure your memorial service and the disposal of your body are in line with your wishes. To do this, draw up an affidavit of burial/cremation that also outlines your funeral arrangement wishes. If you do not create this document, most states give the decision-making responsibility to your next of kin.
Amidst all of the joy and newness you are experiencing with your young child, you may not want to think about something as heavy as estate planning. However, with a new child comes big responsibility. Ensure the future of your children and your family by starting your estate planning now. So if you want to do the right and responsible thing for your family, make estate planning part of your parenting.
