New parents should protect their children through estate planning.
Adulthood brings many responsibilities.
Bills and rent must be paid.
Groceries must be purchased, and meals prepared.
Laundry must be sorted, washed, dried, and folded.
Such tasks are no longer simple chores but are necessary for daily living.
According to a recent The Motley Fool article titled “3 Estate Planning Documents Every Parent Needs,“ these responsibilities only expand when people have children.
Children cannot provide for themselves or handle all of these tasks independently.
Instead, the parents must care for the children.
Those who welcome a new baby are no longer only responsible for their own needs.
Parents must now nurture and provide for their offspring as well.
Although some adults are willing to risk their own security by neglecting estate planning, parents can jeopardize the lives of others by failing to create an estate plan.
What are essential documents for parents to have in place?
Last will and testament.
As the most fundamental estate planning document, a last will and testament provides directions for handling your estate when you die.
With a last will, you can designate an executor for your estate and instruct who should inherit your assets, let alone when and how.
For parents, this document holds even greater weight.
The last will is used to nominate a legal guardian for your minor children if they are ever orphaned.
Without this document, courts will decide who rears your children.
Revocable living trust.
Although inheritances can be fairly straightforward in a last will when the heirs are all adults (and are not just “adults who are still children”), providing for minor heirs can be complicated.
Typically, a guardian will be appointed by the court as the conservator to manage assets inherited by your child.
After your child becomes a legal adult, they can fully own the property.
Although this may sound reasonable, it can lead to problems if you leave your children significant assets.
Often, newly minted adults are poor at financial management.
An inheritance trust can help resolve these issues.
Rather than inheriting outright, your heir can be named a trust beneficiary.
A trustee will manage the trust on behalf of the heirs and make distributions according to the guidelines outlined in the trust document.
This gives you greater control over protecting the assets from and for your heirs.
Financial power of attorney.
Although a last will provides direction regarding how assets will be handled and distributed following your death, it has no authority while you are incapacitated.
To address incapacity planning, parents should have financial powers of attorney.
Financial powers of attorney give authority to a trusted agent to access bank accounts, manage finances, file tax returns, and even pay bills when you cannot do so yourself.
If no power of attorney exists, your loved ones must request and receive a court order to have this authority.
There could be a significant delay in releasing money to provide for your children’s needs.
As a parent, your children and your spouse rely on you.
Losing an income earner or a homemaker can lead to significant financial issues.
Consequently, parents should purchase life insurance.
The most affordable option is typically a term life insurance policy with benefits paid if you die within a specific time period.
Although it is unpleasant to consider your death when welcoming a new life into the world, parents should prioritize estate planning to provide for and protect their children.
And only you can make that happen for your own family.
Reference: The Motley Fool (June 2, 2023) “3 Estate Planning Documents Every Parent Needs“