As parents, we’re often over-consumed with our child’s immediate needs. They need to be changed, fed, drove to practice, helped with homework- you name it. This leads us to negate many long-term preparations that could protect our family.
Yep, we’re talking will and estate preparations. It’s not glamorous (or even a remotely light subject). It’s no one’s idea of a fun Saturday afternoon.
But, it is a very crucial step to ensure your family is well protected in the event something happens. Planning for the unexpected saves everyone, including your child, some headache and confusion. Here are 7 estate planning basics for parents to get started on while their child is still young.
1. Finding a Guardian and Trustee
We often hear of “godparents” who intend to serve as legal guardians of a child in the event their parents pass. But, there’s another important individual to designate in your will: a trustee. This person is responsible for your child’s treasury needs.
A guardian handles mostly the day-to-day business of caring for a child. They’ll also cover some of the more “big picture” items, such as deciding on a school.
A trustee, on the other hand, strictly handles financial matters. They’ll ensure they pay your child’s bills, file income taxes, invest left-over funds, etc.
Unlike a guardian, this person legally may have to remain a part of the child’s life past 18. A trustee is often required until the child is financially responsible on their own.
Make sure you confirm interest from both parties. Being asked to be a guardian or trustee is usually an honor. But, for some people, it’s not feasible, so they need the opportunity to decline.
2. Developing a Will and/or Testamentary Trust
Some states require the child and spouse of the deceased split the estate’s money if they leave no will. Verhaeghe Law Office gives this example of how Alberta handles intestate:
If the net value of an estate is less than $40,000, the entire estate goes to the spouse. If the deceased had no children, the estate also goes to the spouse.
But, if there are a child and a spouse, the spouse retains $40,000 of the estate. The remaining balance is then divided between the spouse and the child.
3. Purchasing Life Insurance
Figuring out how much life insurance to purchase isn’t an easy decision, young or old. You can start by determining how much your family would need if you were to pass. Think of this as a replacement for your income.
Another variable you’ll want to consider is how “long” you’ll need insurance for. Obviously, we don’t know when our time will come. So, we have to consider illnesses and current conditions to evaluate how healthy we are.
If you’re relatively healthy, you may want a permanent life insurance plan. But, if you have a debilitating condition, term insurance could be better suited for you.
4. Designating Beneficiaries
The first thing to know about designating beneficiaries is to never name a minor. Legally, they’re unable to hold property until they’re 18. So, the state may have to appoint an attorney to oversee until a child becomes an adult.
The minor’s share could also get designated to an ex-spouse, in which they’d get control over the funds. Divorcees may want to consider updating their account to include their current partner or adult child, if appropriate.
You can, however, name a trust for your child as a beneficiary. This process can be complicated, so it’s best to work with a lawyer if you don’t have a trusted beneficiary.
5. Updating Accounts
You can’t forget about the funds that don’t fall within your will. If you don’t specify what to do with these funds, it’s unlikely your child will receive them. It could mean that the money would leave your family’s pocket and go to a state escheator.
So, to prevent this, you’ll want to update your solely-held accounts. You can name another party as a joint owner if you feel comfortable. Another popular choice is to make the account “transferable upon death”. You’d then designate a beneficiary of this account.
6. Save, Save, Save
Your savings account impacts your family long after you’re gone. Even if you pass away, you can still help contribute to furthering your child’s education. College isn’t getting any cheaper, and any bit can make a lot of difference.
On average, Americans should strive to save $200 per child per month. This equates to $43,200, which can significantly offset a tuition bill.
You should establish a tax-free savings account with your child’s name in it. Make sure you have in writing the purpose of this account for the trustee. You should also name your significant other as a joint owner of the account.
7. Establish a Living Will
A living will is beneficial for both you and your family in the event you become incapacitated. For you, it ensures you’re able to make the best decisions for your own life.
This takes a ton of weight off your family’s shoulders if they were to ever in this position. End-of-life care is stressful, and it often leads to disagreements among family members.
It’s a morbid thing to think about, we get it. But, it’s a gesture of love to those who’d otherwise have to make hard decisions.
Estate Planning Basics
Whew, we made it! As we said early on, estate planning basics isn’t an easy subject. But, fellow mommas, it’s so imperative we prepare for the future. And, that means covering all our bases- in life and death.
Family life is quite a blessing, but we all could use a little support from time to time! Be sure to check out more articles on ruling the roost under our ‘Family Life’ tab. Also, don’t hesitate to contact us with any questions.