As a new parent, your attention is mostly focused on figuring out how to take care of your newborn – and how to get them to sleep at night so you can get some rest. But just as important as caring for your child in the present is creating an estate plan to care for them in the future.
There are a lot of variables in creating an estate plan when children are involved. That’s because you’re not just planning how to distribute financial assets. You’re also naming the people who will be in charge of your child’s upbringing if something happens to you. Here are four important elements to consider when creating your plan:
1. Discuss who you want to care for your children and property.
Consider who you trust to take care of your children, who you want to leave your property to and who you want to manage distribution of your assets. Be sure to choose someone who will carry out your directions and make decisions for you when you can’t. Make your wishes known and put it in writing. We repeat: put it in writing!
2. Start with a will — and a trust.
A will is a document in which you set out specific directions on who receives your property after your death. A will also spells out the terms for these gifts, names who you want to carry out your directives and names who will care for your dependents. If your children aren’t old enough to manage property and assets, an attorney can help you set up a trust to manage your children's assets until they're adults. A trust establishes a fund from which the children's financial conservator or trustee can draw money to cover their expenses.
3. Select someone to care for your children.
Your will should name a guardian to care for your minor children. And because children can't own property until they turn 18, your will may also name a conservator or trustee to manage the children's assets. One person can serve as both the personal guardian and the financial conservator, or those roles can be served by different people. Consider reviewing your choices annually, especially if personal and financial situations change for your family or your designated guardian or conservator.
4. Name your beneficiaries.
Generally, if the money is for the benefit of your children, you’ll be better off setting up the designation to a trust of the child or children or to the trustee of such trust. Check with an attorney in your state for the proper form of designation. This is important to note because minor children can’t receive the proceeds, and the insurance company will seek a court order designating how (and to whom) proceeds should be paid.
Keep in mind, if you have a life insurance policy, 401(k) or IRA account, the beneficiary forms accompanying these documents overrule wills. The funds in these accounts will be distributed to whomever you name in those documents – regardless of whom you specify in your will.
This is a lot to process and think through – but the decisions are important and necessary. Reach out to an estate planning attorney to figure out the right estate planning documents for your family and how you can best protect your children.
