The Essential Estate Planning Checklist for Young(ish) Parents
You’re a new parent. Or maybe you were a new parent… a decade or os ago. You’re still young, even if you remember jamming to your self-made mix tape or your first cell-phone was a brick. Regardless, you haven’t gotten around to preparing an estate plan. Look, we totally get it! Life is crazy with a newborn. Then, you blink and your baby is in high school! Whether you’re still changing diapers or teaching how to change a flat tire, the following tips will help ensure your family is protected.
1. Draft a Last Will and Testament.
A Last Will and Testament is typically the foundation for any estate plan. It doesn’t have to be overly complex! Your will should address who you want to receive your assets after you die, identify an executor to settle your estate and name a guardian for your children.
For most young parents, the most crucial decision is who to nominate as the guardian for their kids in the event both parents die. Selecting a guardian is not a subject to take lightly. You’ll want to choose someone you know well, who shares your values, goals and parenting style. You’ll also want to make sure the person is able to take on children financially. Ideally, this person would be young enough to see his or her responsibilities through to your children's adulthood, and in good enough health to tackle the challenges of childrearing.
Or course, don’t forget to ask whether your choice of guardian will accept the role. Otherwise, if you die, the individual may be like, “What, what!?” There may be valid reasons why someone can’t fulfill your request, and it is better to find that out while you still have the option of making another designation.
2. Get Life Insurance.
For young parents, a life insurance policy is a great way to ensure your family can sustain expenses such as food, shelter and medical costs if the primary breadwinner dies. There are specific types of life insurance, such as whole or term. Each has their own benefits depending on the needs of your family. But how much should your policy cover? While there is no hard and fast rule, a general rule of thumb is to have a policy that covers at least five years of your annual income.
3. Review and Update Beneficiaries.
If you already have life insurance, review the designated beneficiaries. It’s actually a terrible idea to directly designate your youngsters as beneficiaries, at least while they’re minors. Turns out, you can’t just give a kid a million bucks. If you insist, the court will appoint a guardian, a costly process, to handle the proceeds until the child reaches 18 or 21, depending on the state.
Instead, consider leaving the money for the kid’s benefit to a reliable adult; set up a trust to benefit the child and name the trust as the beneficiary of the policy. Alternatively, you may want to name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act.
4. Set-Up a Trust.