You’re a new parent. Yay, and congrats! What an exciting time. Your life is filled with hopes and dreams for your child’s future. Now, it’s time to ensure you can make the best possible future for your child.
One of the most important steps you can take as a new parent is putting together an estate plan. Young parents often think estate planning can be put off until they are older, but in reality, drafting your estate plan is just as important as putting together the crib.
While most young parents do not need a complex estate plan, it should address the following:
Last Will and Testament
A will is typically the foundation for any estate plan. Your will should address who you want to receive your assets after you die, identify an executor to settle your estate and name a guardian for your children. A will can be complex or relatively straightforward, but without a will, state intestacy laws determine who receives your property and who settles your estate.
For most young parents, the most important decision they make when creating their estate plan is who they nominate as guardian for their child(ren). A guardian is the person responsible for caring for your minor children in the event both parents die. Choosing a guardian is not a subject to take lightly, as this decision will have the most lasting effect on your child.
There are several factors to consider before naming a guardian such as their ability to take on a child financially, similarity to your parenting style and, perhaps most importantly, their willingness to accept the role. If they choose to decline the role, a judge appoints a guardian instead. Having an open conversation with your choice of guardian before finalizing your estate plan ensures your child will be cared for by a person of your choosing – rather than the court.
For families with young children, a life insurance policy is a good way to ensure your family can sustain expenses such as food, shelter and medical expenses if the primary breadwinner dies. There is not a set rule for how much your life insurance policy should cover, but a general rule of thumb for the policy to cover at least five years of your annual income. There are multiple types of life insurance, such as whole or term, and each has their own benefits. The policy you choose depends on the specific needs of your family.
Trusts are another valuable estate planning too that allow you to pass assets and property to beneficiaries. Using a trust is common with young parents, especially if they want to leave money to their children, but not in one lump sum. There are multiple types of trusts you can incorporate into your estate plan, and each functions differently.
Putting an estate plan together may not be the most exciting part of being a parent, but it gives your family much needed emotional and financial peace of mind. To get started, contact a Fifth Third Bank financial advisor today.