Estate Planning for Young Families: 5 Questions Parents Need to Answer
It’s a tough conversation for any parent to have: Do you know what would happen to your kids if you were to pass away? Who would be their primary caretaker? Would they have enough money for necessities, let alone college? The questions are numerous, and the answers aren’t easy. The topic is so unpleasant that many Americans are avoiding it all together, so much so that a recent survey shows that nearly 64 percent of Americans don’t have a will.1
Put yourself in the driver’s seat and avoid leaving decisions about your family up to your local courts by creating a will. Start with these five key questions:
1. Who will take care of my child(ren)? This is probably one of the most important questions you will ask yourself when estate planning, and for that reason, it’s often the hardest to answer. Choosing a guardian now can give you peace of mind, knowing that if something were to happen to one or both parents, your children would be raised by a close friend or family member of your choosing.
Help narrow down your choice of guardian by considering the following questions:
- Is the person physically able to care for your kids?
- Does the person live close? If not, would he or she consider relocation?
- Are this person’s finances and relationships stable?
- Will the person give your children the life you want for them?
2. Do you have life insurance? Although there are many benefits of life insurance, one of the greatest benefits is that it can help ensure your children have the financial security necessary to live out their dreams. If you were no longer here to support your children, it can provide funding to pay outstanding debt, maintain your children’s standard of living and even pay for college.
Not all life insurance policies are created equal. A financial professional can help you understand different types of insurance and what’s best for your unique needs. A professional can also work with you to choose a beneficiary of the life insurance—which is an especially big decision if you have minor children.
3. Do you have a trust? The basic function of every estate plan is to determine who should receive what and when. Even celebrities have missed this one. Creating a legal document that spells out what you want to happen to your belongings takes out unnecessary stress and confusion. If you leave small children behind, a trust can help you specify how and when to pass money and your belongings to your children.
If you think that your child’s guardian would automatically be able to use inheritance money to care for your children then you’d likely be wrong. By default, the court—not the guardian—will control the inheritance before the child reaches the legal age of 18 or 21. If you’d like to avoid any confusion as to what your children inherit and when, a trust may be a good choice for you. Within a trust you can decide who will manage the money and decide when the children will receive trust assets and for what purposes.
4. Who will manage all of my assets? An average American family may have accumulated assets such as cars, a house, retirement accounts, life insurance and education funds. Making sure your assets are managed and distributed according to your wishes after you pass could prove to be difficult and time consuming. Selecting a competent and trusted executor, a person charged with carrying out your last wishes, is key. Often people choose a spouse, an older child or a trusted friend to serve as executor and administer their estate.
5. Who will make medical and financial decisions if I’m seriously injured? Many people think about estate planning in the context of someone dying—but it’s equally important if you’re sick or injured and can’t make decisions for yourself. Having a health care directive and a durable power of attorney for finances will ensure someone can manage your care and finances if you’re not able. Although laws vary from state to state, if you’re married, your spouse would likely be legally able to make important medical decisions on your behalf. To make sure things go smoothly, you should have your attorney draft a health care directive and financial power of attorney and name your surviving spouse or trusted friend or family member as the attorney in fact and health care agent.
You can probably think of a million things you’d rather do than tackling the questions above, but think about the alternative and the court making the decisions for you. Once your plan is in place, it’s a good idea to review and update on a regular basis, especially when major life events or financial changes occur.