Having a baby is a life-changing transition. First-time parents spend nine months planning for the child, addressing everything from painting the baby’s room, stocking up on supplies, and installing car seats. There is one area of planning that is often overlooked, and that is estate planning. Here are the top four things you should consider addressing in your estate plan when you have a child:
1) Name a Guardian – A guardian is the person or people who will care for the child if you and your spouse pass away. While this may feel like a remote possibility, nearly every parent would prefer to have a hand in this decision as opposed to having the court decide if proper planning wasn’t in place.
2) Create or Update Your Asset Distribution Plan – You will most likely want to include the new child as a beneficiary in your estate plan. This means implementing or updating your will or revocable trust. There is a large amount of flexibly when determining how and when the child will receive the assets intended for them.
3) Outline Who Will Manage the Child’s Assets – If the assets will be held in a trust for the child’s benefit, you would name a trustee to supervise the assets and make distribution decisions. For any assets owned outright by a minor child, you would name a “conservator” for the assets. This can be the same person as the guardian, although there are some benefits to naming different individuals, primarily a checks-and-balances system to make sure the assets are used appropriately.
4) Update Your Beneficiary Designations – This step is missed more frequently than you might realize. It is important to understand that your will or trust do not control assets that are distributed via a beneficiary designation. Retirement plans and life insurance are the most common assets that are distributed this way. It is critically important to review and update these designations when you have a child.
Having a baby requires a lot of planning. Be sure you address your estate plan as part of the financial planning process. This will ensure that your intentions are carried out if you were to pass away.