Congratulations on your bundle of joy! At Hollingsworth Roberts Means, LLC, we hope for nothing but the best for you and your family. As such, we feel there are few things you should do whether you’re just starting a family or adding to it. The following tips will help ensure your family is protected and provided for in case the worst comes true.
Draft a Will
This should be the first item on your to-do list. Not only can a will be utilized as a means of distributing your assets, but it can also be used to select a guardian you trust to care for your child in the event of your death. If no guardian is appointed by will, it is up to the state to find a suitable candidate, who may not be your first choice. Finally, a will lets you select who will be the executor of your estate. The executor not only ensures your assets are distributed according to your wishes, but is also responsible for filing tax returns, paying creditors, and other administrative tasks. Thus, it is important to select someone you can trust to fill this role.
Listed beneficiary plans, such as life insurance, retirement plans (401k, IRA, Roth IRA, etc.) and other plans, require you to designate a beneficiary, or beneficiaries, of the plan’s funds. While it is a major benefit that these plans avoid probate, there can be some drawbacks to the plans if you don’t update your plan’s listed beneficiaries. For instance, say you want your life insurance to be distributed equally amongst your children, so you list your current 2 children as 50% beneficiaries each. Then, you have a third child, however, you fail to update your beneficiaries to include the third child before you pass. In this scenario, the third child would be omitted as a beneficiary and entitled to nothing from the plan. Alternatively, if you forget to update your beneficiary after they pass away, then the funds from the plan will be transferred into your estate to be probated with your other assets.
Get Life Insurance
Not only can life insurance provide your child and family with much needed support funds in the event of your death, but can also be highly valuable in ensuring your debts are paid off, allowing your child to inherit your estate unfettered by high dollar claims, such as a mortgage. Ideally, you will have at least two policies set up: one for the healthcare and maintenance of your child, the other to pay of your creditors and probate costs. Additionally, you can combine the life insurance policy with a trust to allow for long term management of the funds.
Set-Up a Family Trust
Even for those with little assets, a Family, or Minor’s Beneficiary, Trust can be a powerful tool for providing for the care and support of your children. The Uniform Transfers to Minor Act limits the amount children under the age of 18 can receive directly through inheritance, and any of the excess must be placed in the hands of a custodian. While the custodian does take care of the property until the age of 21, there are some drawbacks to this. First, only one custodian can be appointed to manage the assets. Second, the custodial relationship ends at the age of 21, providing no long term planning. Setting up a Minor’s Beneficiary Trusts allow for co-trustees and for the trust to continue past the age of 21. Furthermore, family trusts are easy to implement, and can even be included in your will. However, we recommend setting one up during your life to take advantage of the yearly gift exclusion and fund the trust in your lifetime, reducing the size of your estate while increasing the income earning potential of the trust.
Obtain Limited Power of Attorney Documents for Your Children’s Caregivers
Not all estate planning implications require your death to have a use. Often, parents need a break and take a short vacation while leaving the kids with Grandma or another caregiver. There’s certainly nothing wrong with this, but parents should strongly consider giving these caregivers a Limited Health Care Power of Attorney for the kids and a Limited Power of Attorney for their property. The Health Care Power of Attorney can be written in a way that allows for the caregiver to make basic health care decisions in the event of an emergency, while leaving the major decisions to the parents. Similarly, the Power of Attorney over property can also allow for the caregiver to maintain the property during the owner’s absence.
Establish a Plan for College
Your newborn may be small now, but in just 18 short years, they will be all grown up and ready to go off to college. More than likely, your child won’t be the only thing to grow in that time. In the last 20 years, in-state tuition rates have increased nearly 300%, and are estimated to increase to $40,000 a year by 2030. Thus, it is important to start planning for college now, rather than the year in which your child will be applying to universities. Savings bonds and accounts can help but there are better options. A 529 Savings Plan is a powerful and efficient tool for college savings. Not only will a 529 Plan allow for you and your spouse to contribute, but your relatives and friends as well. Furthermore, contributions to a 529 Plan may qualify you for current year tax credits and deductions. Additionally, a 529 Plan ensures that the money put into the Plan will be used for educational purposes, as the funds are not only controlled by the parent, but can only be used for educational purposes. Should a child choose to not go to college, the parent can simply change the beneficiary of the account, or even use it themselves to attend classes.
The attorneys at Hollingsworth Roberts Means, LLC Attorneys at Law are ready to help you with your estate planning needs. It is important to begin estate planning today rather than wait. Even if you already have an estate plan, it’s important to remember to review it every year to ensure its conformity to your wishes. Call us at 317-569-2200 to connect with our team.