Estate Planning for Young Families: 5 Questions Parents Need to Answer

Anna Burton is a lead planning excellence consultant at Northwestern Mutual.

No parent wants to think about leaving their children behind. But it’s important to map out a game plan for a future without you. When you write out your wishes ahead of time, you can help ease a difficult and emotional transition. Planning ahead can help make sure your family will have enough money for necessities. Depending on their ages and aspirations, planning for college expenses can help provide children with the experiences you want for them.

We know it’s uncomfortable. The topic is so emotion-filled that many Americans are avoiding it all together. A recent survey shows that just 36 percent of parents with kids under the age of 18 have a will. When you create a will—and handle the other parts of estate planning for young families—you put yourself in the driver’s seat. You make important decisions rather than leaving them up to your local courts.

If you’re in an accident and become unable to work (or even pass away), having a well-prepared plan can be invaluable. Start with these five key questions:

1. Who will take care of my children?

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 help give you peace of mind: If something were to happen to one or both parents, you know your children would be raised by a close friend or family member chosen by you.

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 nearby? If not, would they consider relocation?
• Are this person’s finances and relationships stable?
• Will the person give your children the life you want for them?

Once you have selected your chosen guardian(s), officially designate them in a will. It can also detail how your property should be dispersed upon your death—just keep in mind that it doesn’t override the beneficiaries listed on your financial accounts. Keep beneficiaries updated on your life insurance policies, retirement accounts like 401(k)s and IRAs, and other financial tools.

2. Do I have enough life insurance?

Although there are many reasons to get 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, life insurance could provide funding to pay outstanding debt, maintain your children’s standard of living and even help pay for college.

Not all life insurance policies are created equal. Your Northwestern Mutual financial advisor can help you understand different types of life insurance—including term insurance and whole life insurance—and what’s best for you.

Your advisor can explore other strategies to help protect your money while helping it grow. That may include disability insurance and planning for long-term care needs.

3. Do I need a trust?

At its core, your estate plan determines who should get what and when. Creating a legal document that spells out what you want to happen to your belongings can help avoid unnecessary stress and confusion. If you leave young children behind, a trust can help you specify how and when to pass money and your belongings to them. You may think trusts are only for very wealthy people, but they can be important at many levels of income.

Without proper estate planning, the court—not the guardian—controls an inheritance until the child reaches the legal age of 18 or 21. A trust can help you clarify what your children will inherit and when. Within a trust, you can specify who will manage the money (the trustee) and decide when the children will receive trust assets and for what purposes.

4. Who will manage my assets?

Even if you have college debt or owe money or your credit cards, you may have built up assets over the years. These may include 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 can be difficult and time consuming.

Selecting a competent and trusted executor, a person charged with carrying out your last wishes, is key. You might choose a spouse, an older child or a trusted friend to serve as executor and administer the estate. Some people name a lawyer, accountant or other trusted business professional. The only hard-and-fast rules are that the executor be of legal age, a U.S. resident and not legally incapacitated.

Your executor may need to take on some serious responsibilities for the assets you leave behind. For example, they may need to maintain property until it’s sold and account for any expenses or taxes on your estate. (If you have significant wealth, tax efficiency regarding federal estate and gift taxes will come into play.)

5. Who’ll make important 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 help ensure someone can manage your care and finances if you’re not able to. 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 spouse or trusted friend or family member as the attorney in fact and health care agent.

How to start estate planning if you have kids

You can probably think of a million things you’d rather do than tackle an estate planning checklist, but think about the alternative: a probate court making the decisions on your behalf. Having the hard conversations with your family now is worth it to help avoid leaving loved ones to navigate the unexpected unprepared.

Correctly and completely filling out all the necessary forms and documents is often best facilitated by an estate planning attorney, especially in complex situations. But legal software is available to assist in simpler estate planning documentation. Your Northwestern Mutual financial advisor is another great resource—they can assist in connecting you with lawyers and offer guidance on strategies for passing down the legacy you’ve built.

Financial Representatives do not render legal advice. Consult with a legal professional for legal advice that is specific to your situation.