When my wife, Leah, and I found out two years ago that we were expecting our first child, I was ecstatic. I could already imagine the joys ahead: holding my tiny newborn for the first time, pushing my laughing toddler in a swing and proudly letting go of the bike as my child wobbled forward independently.
I also imagined the new responsibilities that would come with parenting, including preparing my family for an uncertain future.
Like many expectant parents, I found myself overwhelmed and wondering, “Where do I even begin?”
Fortunately, as a wealth manager for Piton Wealth and a certified financial planner, I’ve helped many clients answer that very question. It’s how I knew my first step should be updating my legal documents.
Whether you’re an expectant parent like I was, or you already have young children, now may be the perfect time for you to take that step too.
I’ll share six tips to help your family prepare for the future. But first, I encourage you to do one thing – seek professional services.
An estate planning attorney can help you understand all the decisions you’ll need to make as you prepare or update legal documents. An attorney can also help you with specific state and federal estate tax planning, potentially saving you tens of thousands of dollars down the road.
While there isn’t time to explain the essential estate planning documents in detail, keep these in mind as you read: a power of attorney, a will or revocable trust, and a health care directive (sometimes referred to as a living will).
Carefully consider who you want to include in your legal documents.
Leah and I met with our attorney to review and update our legal documents. To my surprise, planning for three was much more complicated than planning for two.
Estate planning involves many roles, such as executors, trustees, guardians, beneficiaries, etc. As you consider who you want to fulfill each role, discuss your options with your spouse, partner or family. Talk about the people in your life who mirror your values the most, the ones who make the best decisions under pressure, and who’s good with money – and who’s isn’t. These decisions may seem straightforward, but they can be stressful if you haven’t considered them ahead of time.
Pick more than one person for each role.
You may already have an obvious first choice, like a spouse, parent or trusted friend. However, I encourage my clients to think about naming at least two people as backup and contingent backup for each role. Why? A spouse may have been in the same accident as you, a parent may have aged, or a trusted friend may have moved away. Naming more than one person can alleviate the need to update your documents frequently.
Sometimes younger clients tell me, “We just don’t have much to pass down right now.”
I pull out a pen and paper and immediately start adding up their assets. People may have more than they realize, and they often forget to count the value of life insurance. Your estate plan should account for any policies you have, such as group life insurance through work, private life insurance, or even mortgage protection insurance. These assets may not have much tangible value now, but they usually offer a substantial death benefit for a beneficiary.
This is one of the most important pieces of estate planning for a young family.
If you and your spouse were to both pass away, naming a guardian for your child would alleviate potential custody battles, but it wouldn’t solve all the financial issues.
In Washington state, guardianship ends at age 18. That means at 18, your child could take ownership of any investment accounts and/or properties you set aside for their future.
While a child this age might be capable of managing assets with sophistication and discipline, it still puts a burden on a young adult who may not have even held a full-time job yet.
A minor children’s trust allows you to set specific guidelines and age limits for when a child will inherit funds. In most cases, I recommend a strategy that allows the child to take ownership of the trust assets gradually, such as 25% at ages 21, 25, and 27, respectively, and then the remaining balance at age 30.
In the meantime, a trustee that you name would be responsible for distributing funds to the child as needed.
A disclaimer trust may enable couples of any age to avoid estate tax in the future. While it is a complicated topic, I highly recommend asking your estate planning attorney to evaluate using it in your final plan.
Remember to follow up with any beneficiary and account changes.
I’m always happy to see clients walk through the door with their newly signed legal documents. They’ve done the hardest part, and it’s almost time to celebrate.
The final step you’ll take is to meet with your financial advisor, go through your list of assets, and check each account to make sure your beneficiary designations and account registration align with your new legal documents.
In most cases, including a trust will require updating account registration or beneficiaries. Missing this crucial step could negate any intentional planning included in your will.
Some of these concepts may seem overwhelming now, but they’re important pieces in the financial plan you’re building for your loved ones. The biggest mistake you can make is not starting at all.
Leah and I were ready when we welcomed our daughter Eden to our family. As we continue to build our life together as a family, I can look back and see what this process has done for us.
It’s enabled us to plan vacations, continue building financial security and enjoy our time together with the assurance that we’re prepared for the unexpected. Although we can’t know exactly what the future holds, we can be sure we’ve done everything in our power to take care of the ones we love most.
Nicholas Mercer, a certified financial planner, is a wealth advisor at Piton Wealth in Kennewick. Originally from England, he now calls Richland home after marrying a lifelong Tri-Citian.
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