Estate planning might not be high on your list of priorities as a new parent, but it should be. You may associate estate planning with something needed when you grow older, but there are many reasons why an estate plan is important for new parents.
Remember that young children depend on their parents for everything. What happens if something happens to both parents?
This is why you need a will. The purpose of a will is generally to distribute property but you can also use a will to name a guardian for your children.
Guardianships and trusts
A guardian is someone who becomes legally responsible for your children if you and your spouse or co-parent pass away. Without a guardian, your family members could end up fighting over custody of your children or a court could appoint guardians.
Having a will drafted and naming a guardian allows you to know who will care for your children if something happens to you. You have the freedom to choose a guardian you know and trust to keep your children protected and safe.
An estate plan also allows you to set up a trust for your children. A trust enables you to determine how your finances are handled if you pass away.
If you pass away with minor children, a court may appoint someone to manage your finances. Your children could also receive money or property when they turn 18 without any additional restrictions or requirements.
A trust gives you control of all these decisions. You can appoint a person you want to oversee and manage your property and assets if you pass away and create rules about when and how any of your money gets transferred to your children.
Many parents who set up a trust for their children specify a certain age that the children can access the trust. You might want your children to be a little older before they receive your money or property if you feel they will use it more responsibly.
You can create trust terms specifying that your children do not receive any money or property until a certain age. You can include other requirements, such as requiring the money to be used for college tuition.
Life insurance and beneficiaries
Other smart estate planning decisions include purchasing life insurance and updating any beneficiary designations.
Life insurance provides financial support for a parent if the other parent passes away or for children who lose both parents. Term life insurance that ends when your children reach adulthood is a smart option to consider.
As new parents, we know you are busy and have many other things on your mind right now. However, taking the time to set up an estate plan with these ideas in mind can provide you with peace of mind knowing your children will be taken care of if you are gone.