Life changes. It never stands still. In a moment you find yourself tangled up in memories that span years and generations. Time seems to have a lapse: one moment you walk across the stage at your college graduation and the next moment you bring new life into the world.
Congratulations on this beautiful phase of your life.
Being a new parent, your relationship with time will alter. You’ll hate it for dragging on in the night as your baby cries, love it when it gives you a calm moment in a rocking chair, eulogize it when it goes too fast.
In the bustle and commotion that awaits new parents, many forget to think about estate planning for their family. There is a misconception in the financial space that estate planning is reserved for people in retirement, but starting this process when you are younger will ensure that you have ample time to record your plan. The process is flexible and allows for changes and alterations as you and your family grow. Estate planning is not always an easy topic to discuss, but it is important for the care and protection of your family should something happen to you.
Estate planning is the financial strategy by which a person catalogues, assigns, and divides their assets according to their wishes should they become incapacitated or deceased. Obtaining written and legal documents to support your wishes is crucial for the preservation of your assets and with a new family, the protection for your children.
While there are many important nuances involved in the estate planning process, I have outlined 5 basic elements you should be aware of.
A beneficiary is a person who you elect to receive control of the funds and assets accumulated in certain accounts after you pass. This is an important aspect in estate planning because it designates the person (or people) who will possess the legal right to your accounts. Examples of these accounts:
- Checking account
- Savings account
- 401K retirement account
- Individual retirement account (IRA)
- Life Insurance Policy
- Health Insurance Policy
- Mutual Funds
- Other investments
If you have not updated your beneficiaries in a number of years, now is a great time to do so. Perhaps you would like to make your children or your spouse a beneficiary. A noteworthy addition to this process is that you can often name a secondary beneficiary should the first one you name not be available to assume responsibility.
Beneficiaries are also extremely important due to the legal clout they hold. A beneficiary is often held up in the courts as being more formal and official than a name listed in a will. For example, if on your life insurance policy your beneficiary is your spouse, but in your will you name your child as its recipient, the court would recognize the spouse since they were the beneficiary.
Name a Guardian
Should something happen to you, who would you like to take care of your children? A guardian is responsible for the wellbeing and livelihood of your child meaning that the child would live with and be raised by the guardian.
When thinking about this person, choose someone who shares your thoughts and views on parenting; or who you know will fulfil your wishes as opposed to their own.
It is crucial to know that a guardian is the person who your child would live with, but they are not the person who is in control of the child’s financial life. That person is called a trustee.
Establish a Trustee
If the guardian is responsible for the social upbringing of the child, a trustee is its financial counterpart. This person is tasked with managing the money and bills for the child. A trustee files income tax returns, invests leftover money, and distributes money to your child.
While it is possible to appoint the same person as the guardian and the trustee, many experts say that these appointments should be given to different people who do not have a dependent relationship with each other. For example, you could appoint a grandmother as a guardian and an aunt as the trustee. They have a familial tie that isn’t compromised or in danger of separating.
Sign the Documents
Estate planning requires the interaction of many documents. These documents are in place so that all of your assets are accounted for. A few of the most important are:
- Will/ Living Will
- Your will outlines the procedures you wish to happen upon your death. Wills often contain last wishes and the procedure for dividing assets. Often, wills are legally viable once the person who created it has passed on, but if a major health condition left them incapacitated it is also a good idea to have a living will. This document will outline your wishes should you be in a condition that would not allow you to make the decisions yourself.
- Health Directive/Power of Attorney
- Related to the will and the living will, come the health directive and power of attorney. A health directive is a person who will be responsible for making medical decisions for you should you be unable to. A power of attorney is similar, but covers the remainder of your estate like controlling your assets and investments should you be living and unable to manage them yourself. These people make decisions on your behalf, and are inherently crucial to your estate plan.
- Executor of Estate
- Should you pass on, the executor of your estate would be the person responsible for managing the process of dividing your assets.
Talk to a Professional
Estate planning requires a two-fold professional process and can greatly benefit from the counsel of a financial planner and an estate planning attorney. Both of these resources will be able to help you navigate all of the required documents and can streamline the process for you. Appointing an attorney is also a good idea because they become a contact for your family.
Change is something that we are never used to, but experience often. Your new family is a true gift, be sure you have a plan in place to protect them.