Estate Planning Tips for New Parents
Hey everyone! Over the summer as I've been setting up my estate planning law practice, I've seen a lot of great pictures and posts from my New York and New Jersey friends on Facebook and their awesome baby announcements, gender reveals, and birth photos. That got me thinking... I hope they thought about an estate plan for their new bundle of joy. Contrary to popular belief, the time for estate planning is when your kids are just arriving, not after they leave for college and you're planning for retirement. New parents don’t need anything fancy for an estate plan, but there are a few estate planning things you should definitely think about. I'll break it down in three easy questions to ask yourself:
Who will be my child's guardian if I'm gone?
How can start I lay the foundation of success for them now?
How will my child inherit my stuff?
1. Your Child's Guardian
If you think your mom or your sibling will receive custody if you kick the bucket, don't make that mistake! Anyone can ask for the job, and ultimately a judge will make the decision if your wishes for your child are not in your Last Will. Ages ago (meaning way back before the 90s), it was quite common to appoint godparents to be guardians, especially here in the Tri-State area. However, such traditions are not very prevalent with us Millennials since we enjoy breaking norms and focusing on our world impact. With our avant-garde and wanderlust natures, choosing a guardian ends up going the way of our last college term paper: procrastination. Don't wait for tomorrow! Now is the best time to start talking about it with your spouse or partner. But where do you start with picking? How about some factors to consider:
Values (Personal, Religious, Moral, etc.)
Location of Potential Guardian
Financial Resources of Potential Guardian
Schooling and Extracurricular Access
The best way to name a guardian is in your Last Will, whether you're in New York or New Jersey. Even when you name your child's guardian, the process can be pretty crazy should something happen to you. Many guardians don't realize that they must go to court and apply to become a legal guardian. Make sure to explain this tidbit and the provisions you made in your Last Will to your chosen guardian to avoid potential conflicts or delays. But a Last Will is just one part to ensuring your children are taken care of. In case of incapacity (like if you're in a coma or something), you will want to have a Power of Attorney done to ensure that your assets are used to care for your child and affairs should something happen to you and your spouse or partner. Your Last Will and Power of Attorney are just a few things that are part of your estate plan as a new parent.
2. Foundations of Success
Something my grandmother always taught me as a little kid was to put all my spare change in this giant crayon piggy bank. Years later I opened it up to discover it was in excess of $100. That's a lot of quarters that could have gone into my high-risk asset portfolio in retrospect. Needless to say, it's important to instill those great financial lessons in them while their young. But what else can you do on your part? Lots! Here's a few tidbits:
College Saving 529 Accounts - Your baby may still be wearing one of those adorable skullcaps now, but blink fast and that will soon turn into a college mortarboard or graduate tam (the funny hat). Set up a meeting with your local bank to ask about options to start saving for that momentous occasion (tax free too!).
Life Insurance - This is no easy formula but some finance folks say you should use a three-step formula like this: (Your Income x 10) + $100,000 per child + Amount of Current Debt (mortgage, student loans, credit cards balance, etc.). Such a great product as these little nest eggs can go a long way for your kids when you're gone. Just don't forget the beneficiary designation on this...which I'll talk about next.
Beneficiary Designations (for Retirement Assets like 401(k)s, IRAs, etc. and life insurance policies) - These assets are special because they typically don't go through people like me (legal folk), which means they pass outside the legal process called Probate. Usually this is done when you set up the policy, but make sure to periodically check and update your beneficiary designations if you have another child!
3. Your Stuff as Inheritance
That vintage vinyl player your dad used in his Woodstock days, your collection of first-edition hardcover thrillers, or maybe something everyday as the classic bicycle you ride to work. You're kid will be a lucky one, one day. The best advice I can give you is to plan for when that becomes "one day too soon". Unfortunately, there's no such thing as one way to leave an inheritance for your newborn still in swaddling wraps. Outright lump sum? Milestone or Testamentary Trust? These are fancy lawyer words and some of the ways we legal people help you pass on your inheritance. It's important that you are informed on what these things do. Determining which legal tools are most effective for your estate plan can be difficult, as it is more handcrafted art than science. As your child gets older, be honest about assessing where your child is at, and consider the best way they will manage your money and belongings one day. You can do this by keeping your Estate Plan updated, whether it is in your Last Will or through a Trust (P.S. Trusts are not just for rich people). I sincerely hope you take the time to develop and put an estate plan in place and discuss it with your children (as their first glimpse of #adulting).
It is wise to contact an estate planning lawyer to help design that plan that suits your wishes. But not just your estate planning lawyer! Also keep your accountant, life insurance agent, investment advisors, and doctors in the loop because it really does take a village to raise a child.