The cost to young families without an estate plan is high.
Young families are busy.
Diaper changing, potting training, doctor visits, meal times, and bedtime routines are exhausting.
Many parents feel as if their lives are in constant motion and chaos.
They can barely muster enough energy to go to bed much less think about the future.
According to a recent Wealth Advisor article titled “Why Young Families Should Consider an Estate Plan,” young families assume devastating risks if they fail to create an estate plan.
Why is an estate plan important for young families?
Most young families are not wealthy.
Children cost a lot of money.
Estate planning is not just for those with big bank accounts.
An “estate” is a legal term encompassing all of your assets.
This includes bank accounts, retirement plans, minivans (around here these a affectionately known as “Johnson County Grocery-Getters”), and the family home.
An estate plan allows you to designate the recipients or your assets, settle debts, and care for your family.
Neglecting your estate planning can leave your minor children in a precarious situation, especially if orphaned.
Estate planning is essential for young families who desire to protect the future of their children.
What steps can young parents take?
Purchase Life Insurance.
As noted earlier, rearing children is expensive.
If you are the main breadwinner and you die, your spouse may struggle to find employment to provide for your family.
If both parents work and one parent dies, the loss of this additional income will make a significant impact.
Life insurance can help alleviate this financial burden.
If you (or your spouse) die, the life insurance funds can provide for the needs of your children until they reach adulthood.
Term life insurance can be a wise choice because it has affordable premiums and will be effective until your children are adults and no longer financially dependent.
If you can afford it, permanent life insurance can serve as a forced savings plan and provide helpful life insurance later in life for your surviving spouse.
“I sure wish my recently deceased husband had not bought so much life insurance!” (Said no widow ever.)
Make a Last Will and Testament.
Although a last will is most known for being an estate planning document used to distribute assets, it holds another important role for those with minor children.
It allows parents of young families to designate a guardian for minor children if both parents were to die.
By naming a guardian in your last will, you can nominate someone who holds your same spiritual, moral, and lifestyle values to rear your children .
Without a guardian designated, the court will choose who will rear your children.
Do you really want to entrust this call to a judge who does not know you or your loved ones.
Review Your Beneficiaries.
If you have an IRA or a 401(k), you have assets with beneficiary designations.
Do not forget about your life insurance beneficiaries, too.
These assets are not distributed through probate.
Instead, they are transferred directly to the individual designated as the beneficiary on the account.
For this reason, you will need to update the beneficiary designations to ensure alignment with your current family situation as reflected in your estate plan.
Consider a Trust.
Young families have minor children by definition.
Minor children cannot directly control their inheritances.
In the absence of an estate plan, the probate court will designate someone to manage the money on behalf of your minor children until they turn 18.
Although this may work for a time, very few newly-minted adults are able to manage finances responsibly upon reaching age 18.
To better protect the inheritance for and from your children, a trust may be a wise decision.
You can outline guidelines for the use of the money and designate a trustee to manage the funds on behalf of your children.
Young families who prepare for worst case scenarios in their estate planning provide the best protections for their children and their futures.
Reference: Wealth Advisor (April 13, 2021) “Why Young Families Should Consider an Estate Plan”