There’s no question that having kids changes your life. Naturally, your priorities and responsibilities shift, and this should also be reflected in your estate plan. Here are a few checkpoints
throughout your child’s life when you should recalibrate your estate plan, ensuring that, no matter what, your child is provided for if something were to happen to you.
In the midst of adjusting to parenthood and sleepless nights, crafting an estate plan can easily slip down to the bottom of your to-do list. Without a doubt, it can be a daunting process. Many new parents would prefer to avoid thinking about such a grim topic during one of the most exciting times of their lives. Regardless of how much you’d rather push the matter to the back of your mind, this significant development within your family requires that you update your estate plan (or create one if you don’t already have one in place).
When welcoming a new member of your family into the world, there are two important things to address within your estate plan: the care and custody of that child and the management and distribution of the assets you will leave to them.
For most new parents, writing or revising their will is less about leaving their assets than it is about naming a guardian for their child. This guardian will assume all responsibility for your child if something happens to you. They will decide where your child will live and attend school, what type of health care your child will receive, and make other day-to-day decisions regarding your child’s upbringing. If you don’t name a guardian and a situation arises where your child will need one, the Court will choose the guardian. Because the Court isn’t familiar with your family or your child individually, the person they choose may not be in line with your preferences.
In addition to selecting a guardian, you may also want to set up a trust for your child to preserve your assets for your child when they get older. This trust could include assets such as your home, your life insurance, your retirement accounts, your savings and investments. These assets and funds can then be used your child’s education, living expenses, and health care expenses.
As your child heads off to kindergarten, you will most likely begin to plan for the upcoming years of schooling and how to lay the best foundation for their future. You may begin to grapple with
the eventual costs of their education. When you sit down to plan for their college fund or strategize how to pay for their private education, consider including these plans in your estate plan as well.
There are a few options for how to plan for your child’s education, many parents opt to utilize a 529 plan. Also known as “qualified tuition plans,” 529 plans allow investment earnings to grow sheltered from federal income taxes. Withdrawals used to pay for qualified higher education expenses are tax-free.
As kids grow up, they organically develop their own relationships with family members and loved ones. Certain relationships may grow stronger or weaker over time. Due to these shifting dynamics, it is wise to reevaluate who is named as your child’s guardian when they enter their teenage years. Does your child have a healthy relationship with the person you’ve designated as their guardian?
Also, consider the general health and circumstances of the guardian you had previously selected. Have they experienced health complications that might prevent them from performing this role? Have they moved to another state that would mean uprooting your child if they needed to fulfill these duties as the guardian? Have they undergone any financial hardships? As a parent, you know that raising a child is expensive, so consider whether or not this role would strain your chosen guardian’s financial resources. (Find out more about guardianships)
All Wills where a minor will inherit should include a trust to hold and manage the assets until the child reaches the age of majority. However, when your child approaches adulthood, you may want to reevaluate if you want to give them access to these assets at 18 or later to give them time to mature. Regardless of how mature your son or daughter may be, they may still fall victim to the bad judgment of others. There are many potential issues that can put your child’s inheritance at risk, but some of these hypotheticals can be addressed if your plan is updated to take your child’s maturity into account as he or she ages. (Read more about trusts)
Once your child turns 18, he or she is considered an adult. This means that your son or daughter is legally in charge of their own life now. If a medical emergency arises, health care providers are no longer authorized to discuss or disclose the details of their condition or care with you. Nor are you authorized to make medical or financial decisions on their behalf – even if you pay their tuition, cover their health insurance and claim them as dependents on your tax returns. Ensure that you can assist your child with decision-making if they suffer a serious illness or disability by having them sign a Medical Power of Attorney and a Durable Power of Attorney before they leave home for college or take the next step in life.
Your estate plan should be revisited once your child marries or starts to have kids of their own. Consider if you would like to include your grandchildren in your plan, and if you would, when they should be added.
Once an estate plan is completed, many people will put it in a safe deposit box and then forget about it. I encourage you to avoid this “checked-the-box” mentality. Estate planning isn’t a one-time thing, it’s a lifetime process. Your estate plan should evolve as your life evolves.