Parents with young children have busy lives, and estate planning is often a low priority. However, if something were to happen to you as a parent, you want to know that your children are cared for, both physically and financially. While thinking about estate planning may feel uncomfortable, it’s important to have a plan in place should something happen to you or your spouse. Using these 10 estate planning tips can give you peace of mind that your family will be cared for should you die or become disabled.
- Families with young children should consider estate planning to ensure their beneficiaries get the assets bequeathed to them.
- While a will is important to avoid probate costs and delays, having an estate plan further ensures the timely and effective distribution of your assets upon your death.
- Using a professional estate planner helps ensure you have all the proper documents and may reduce estate or inheritance taxes.
- Write durable powers of attorney and advanced medical directives for financial and medical decisions in case you become incapacitated.
- Be sure to update your will or trust every few years or as your situation changes.
Why It’s Important To Make a Plan for Your Family’s Security
If you have not worked with a financial advisor or estate planner and you suddenly pass away, your estate goes into probate court. Instead of having your assets distributed as you wish, the court decides what to do with your home, cars, jewelry, investments, and any other assets you own. In addition to having the court decide who inherits what, probate can get costly with court costs, attorney fees, and appraisals. These fees come out of your assets, and instead of going to your loved ones, the court keeps the money.
If both you and your spouse die at the same time, who will take care of your children? If you haven’t appointed a guardian for your kids, other family members will have to petition the court for guardianship. This process can be costly and time-consuming, and in the end, the court can make the decision of who will take over care and guardianship of the children.
Without an estate plan, and if both parents die, the court will decide how your money and assets are managed until your kids turn 18. Children and guardians may need that money sooner to cover the costs of housing, schooling, food, and medical care. If you set up a special trust for your children as part of your estate plan, you’re ensuring that your money and assets are distributed and managed as you wish.
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10 Tips for Estate Planning
Here are 10 estate planning tips for young families to help you secure your financial future:
1. Use a Professional Estate Planner
Setting up an estate plan is complex, but hiring a professional advisor with years of estate planning knowledge will make the process simple. You don’t want to make mistakes with these extremely important documents and decisions, and an estate planner will make sure your documents are in proper order.
Estate planning goes beyond writing a simple will and addresses the distribution of your assets, estate and inheritance taxes, legal fees, the transfer of business assets, and the creation of a trust for your family. In addition, as your life and assets change, your children get older, or you have more children, you may want to adjust your estate plan accordingly. A professional estate planner and financial advisor can help you make these adjustments.
2. Buy Life Insurance
While not essential for estate planning, having life insurance can help protect your family should you die. Most life insurance policies will cover end-of-life arrangements, personal debt payments, tuition, mortgage payments, and personal finances, such as groceries. A life insurance policy gives your surviving spouse and children access to funds quickly to cover day-to-day expenses.
3. Draw up a Will
A will, sometimes called a last will and testament, is a legal document expressing your wishes relating to the distribution of your assets and the guardianship of your children. You’ll name an executor who will carry out your wishes depicted in the will, including your end-of-life arrangements. While you can draw a simple will on your own, it’s advisable to use a professional to make sure you meet all of your state’s legal requirements.
4. Choose an Executor for Your Estate
You’ll need to choose someone as an executor of your estate. An executor is a person or institution responsible for carrying out the terms of the will or trust and overseeing the distribution of the assets to the assigned beneficiaries. In addition, the executor takes care of any financial obligations, like paying off creditors, making final tax returns, and paying the mortgage. When choosing an executor of your estate, it’s important to name someone who is organized and responsible to carry out these essential tasks.
5. Name a Guardian
If you have minor children, you’ll want to appoint a guardian in the event both you and your spouse die. This can be a difficult decision, as the guardian must be willing to take on the role of raising and caring for your child or children. If you don’t have a will or trust and have not named a guardian, the court will make that decision without knowing who you prefer to take that role.
You may even want to name alternative guardians in case something happens to the original person you name. Choose a guardian who agrees to take the role, and if things change in their lives or yours in the future, you can reevaluate the situation and name someone else if needed. Having a will or revocable living trust gives you the option to change details in the document.
6. Create a Trust for Your Children
If you have small children, consider creating a trust for them. With this type of trust, you have control of any assets you plan to leave to your children and can decide the age you wish for them to take over the management of the assets or funds. In a children’s trust, you name a trustee to control the assets until your kids reach the age of 18 or a different age you specify. By creating trust funds for your children, you can help them avoid probate court and the fees and delays associated with that process.
7. Create a Living Trust
One of the main differences between a living trust and a will is that the will does not become valid until you die, while a living trust becomes valid as soon as it’s signed. Trusts are private, while wills are public. With a living trust, your beneficiaries can avoid the costs and delays associated with probate. Trusts come as revocable or irrevocable. A revocable trust lets you make changes to the terms and conditions of the trust, while an irrevocable trust does not allow changes to the original document.
8. Complete a Durable Power of Attorney Form
You’ll want to complete a durable power of attorney form in case you become incapacitated and aren’t able to make decisions about financial, legal, and business matters. Whoever you appoint for the power of attorney will take responsibility for paying bills and other financial obligations while you’re alive but not able to make sound decisions.
9. Have an Advanced Medical Directive
In the event you become incapacitated and can’t make medical decisions, you’ll want to add an advanced medical directive to your living trust. With this advanced directive, you’ll appoint someone to make medical choices for you based on written terms within your living trust.
Depending on the state, the person you appoint can be called a health care agent, health care proxy, or health care attorney-in-fact. In your medical directive, you can state whether you want to be resuscitated by CPR or defibrillation, receive mechanical ventilation, have tube feeding, or donate any of your organs or tissue. Work with your professional estate planner to draw up durable powers of attorney or an advanced medical directive.
10. Update Beneficiary Designations and Review Your Estate Plan
Life can change with the addition of a new baby, an altered marital status, or a move to another state. It’s important to review your estate plan every few years, and as your children grow older, you’ll want to update your beneficiary designations. In addition, you may gain or lose assets, and you can note these changes in your will or living trust. Work with your financial or estate plan advisor to make changes over time to keep your will or trust fresh and relevant.
Even though estate planning may feel unnecessary if you and your spouse are young and healthy, it’s still one of the top things you can do to protect your family in the long run. You want to make sure your children are well taken care of and receive the financial care they deserve. Our team at Anderson Advisors can help you draw up a will or living trust and create the perfect estate plan for your unique situation. Contact us today to learn more about our estate planning process.
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