Estate Planning for New Parents and Parents-To-Be
About a year ago a friend called me and asked if I wanted to join him on a skydiving trip. Two years ago I would have jumped at the opportunity, however this time there was something different. Before I answered him, I started to think about my life insurance policy and if I had made my wife the beneficiary. My life was different. No longer was I a bachelor, who could drop everything on a whim and jump out of a plane without any concern. I had a family to think about. I had to make sure that if something were to happen to me, my wife would be protected.
To make things even more interesting, earlier this year we were overjoyed to find out that we were expecting our first child. We were extremely happy, and immediately began researching the best doctors, hospitals, foods, and eventually started looking into the safest crib, the best stroller, car seats, the burp cloths, whether or not to get a diaper cloth warmer, what’s the best lotion and baby powder? You get the idea. However, even with everything going on in our lives, I knew that one of the most important things that I could do to protect my family was to create an Estate Plan or update a pre-existing one.
According to Forbes, half of Americans do not have the basic estate planning documents, including a will, financial power of attorney, medical power of attorney, needed to protect them and their assets if they became incapacitated. Most people have the misconception that you have to be a Rockefeller or Warren Buffet to need an Estate Plan. The fact of the matter is, regardless of the size of your estate, a well-documented Estate Plan can provide you the peace of mind by knowing that if something were to happen to you, your family will be protected.
Estate planning for new parents and parents-to-be may be a bit intimidating, so here are few simple things to set up to ensure that your loved ones are protected:
TRUSTS
There are a number of different Trusts, and different reasons to create a Trust.
- You may want to create a Revocable Living Trust to avoid probate. If an individual passes away and has assets over $150,000, in order for the heirs to receive the assets, they have to go through the probate courts. Probate is an expensive and long process. By creating a Revocable Living Trust, you eliminate the need for probate and ensure that your heirs receive the assets in a timely and inexpensive manner.
- Another reason for creating a Trust is to determine how your assets would be distributed upon your death. By creating a Trust, parents can set up a plan to ensure that their minor children will receive their inheritance, but only when they are old enough to manage the money themselves.
WILLS
A Will is a legal document with instructions on how to distribute an individual’s assets after death. Simply documenting your wishes on a piece of paper and stuffing it into your desk drawer, is not the best way to create a Will. Regardless of the size of your estate, I suggest contacting an Estate Planning Attorney to have a valid Will drafted for you and your spouse. NOTE: there are major differences between a Living Trust and a Will. Simply having a Will does not avoid the Probate process. A Living Trust is still the best option. A complete Estate Plan package will generally include a Living Trust and a Will.
GUARDIAN FOR YOUR CHILDREN
My wife and I recently discussed the topic of guardianship and who would take care of our child, if something were to happen to us. We decided that my in-laws who are local to San Diego would be the best option. This is a topic that most parents discuss, but don’t always document. Although courts will honor the parent’s choice of guardianship, this choice should be officially documented. Failure to document your guardianship selection will result in the court deciding who should take care of your children. Once again a professionally drafted Estate Plan will cover the topic of guardianship.
ADVANCED HEALTH CARE DIRECTIVES AND FINANCIAL POWER OF ATTORNEY
Who would manage your finances if you were unable to do so? What actions would be taken in regards to your health, if you were incapacitated, and unable to make those decisions? These are the key elements that are addressed by a Power of Attorney and Health Care Directives.
The Power of Attorney deals with individuals’ financial needs. Via a POA you elect a person who will make financial decisions on your behalf such as paying your bills, your mortgage etc. Health Care Directives names an individual who you nominate to make medical decisions on your behalf.
Through the Advanced Health Care Directives, you can nominate an individual to make medical decisions on your behalf if you are deemed incapacitated. You can state your wishes regarding medical treatments and end of life decisions. Clarifying these choices helps take the burden away from family members.
LIFE INSURANCE
No one ever wants to think about death, but regardless of how we feel, there is no denying that parents should have adequate life insurance. To put it simply, a life insurance policy provides money for the beneficiaries (survivors) upon the death of the insured. My wife and I each own a life insurance policy. Generally, an individual who has a Living Trust would name his Trust as the beneficiary of the life insurance policy. This ensures that if something were to happen to the individual, the money from the life insurance policy would be disbursed to the beneficiaries based on the language of the Trust.
Regardless of which avenue you decide to go, there is no denying that as parents you always want to make sure that your children are protected. As a soon to be father I have spent a lot of time test driving baby strollers, researching which car seats are the safest, and which feeding bottles and feeding bibs are the best. At the end of the day, I just want to be the best father in the world and protect my child. However, nothing will give you more comfort than knowing that by creating an Estate Plan or purchasing Life Insurance, you have prepared for the unknown and provided for your child’s future.