Estate Planning For New Parents
By Liza Hanks
Finch Montgomery Wright
Having a new baby ranks right up there with the world's most disruptive personal transitions. There's just nothing like major new responsibilities, sleeplessness, arguing with your spouse over new jobs, placating your other children (and pets), and dealing with caring for someone 24 hours a day who can't even hold up their head. On top of that, there's planning for that new person's future. Over the years, I've given many talks at the Packard Children's Hospital, Good Samaritan, and El Camino hospitals for new parents. Here are a few basic things that new parents should begin thinking about with respect to estate planning. If you would like to learn more, you can download my ebook, The Family's Guide to Wills and Estate Planning.
- Try and Relax
I always tell new parents that they don't have to do everything at once. They've got enough on their hands just managing with the day to day tasks of taking care of an infant. But later, when they're getting a bit more sleep, there are a few things to do as soon as they can, and others to consider doing as opportunities to put things in place gradually arise.
- Start with Choosing Guardians
Sometimes the most difficult thing for new parents to do is to imagine dying before that new baby grows up. But if they don't step up and make the choice, they're leaving that choice to a judge who doesn't know their families (or their in-laws) as well as they do. I tell them to focus on the next three to five years. They can always revisit this later.
- Create a Will
While it's true that a revocable living trust is an excellent estate planning document, for new parents, naming guardians is the most important estate planning task. And that can be accomplished with a simple Will. In fact, the Probate Code permits you to nominate guardians in a simple signed writing, you don't even have to execute a Will, but most people use Wills because, in addition to nominating guardians, a Will allows parents to put a management plan in place for minor children's assets too. It's true that a Will requires a probate to settle an estate, but for young parents who may be strapped for cash and wracked with guilt, a Will is an excellent, inexpensive estate plan that makes a lot of sense.
- Create or Update a Revocable Living Trust
For parents who want to do a more comprehensive estate plan, a revocable living trust is one of the best tools for parents to provide an inheritance for the new baby without going through the time-consuming and expensive probate process. The trust document lists the property or assets in the trust, names a trustee, and states who gets the property when the trust creator dies. The trustee is typically the person who creates the trust, and upon death, a successor trustee takes over. Revocable living trusts can be adjusted or altered in response to life’s changes, which makes it a flexible and versatile tool for providing for a child’s future. For parents with expensive Silicon Valley homes, trusts make a lot of sense.
- Buy or Update Life Insurance Policies
Life insurance is a great idea for new parents. Life insurance policies give them the ability to provide their family with financial resources if anything unforeseen should happen. Often, young families own expensive and highly mortgaged homes. If there's a sudden death, those homes may or may not be easy to sell (remember 2009?). So life insurance provides immediate cash for families in crisis. I always tell my clients that they're as young and healthy now as they're ever going to be, so buying insurance now means that their policies will be inexpensive compared to what those policies will cost down the road. Also, I encourage all of my clients to buy policies outside of those provided by their jobs -- in this valley getting laid off is a rite of passage, and having a separate policy that's not connected to a job makes sense.
- Create or Update Powers of Attorney and Advance Health Care Directives
Even young and healthy people get sick or hurt. While dying is pretty unlikely for young parents (thank goodness), planning for incapacity just makes sense for everyone. So, all new parents should update or create Durable Powers of Attorney and Advance Health Care Directives as part of their new-found desire to act like responsible adults.
- Designate Beneficiaries for Retirement Accounts
Many people forget to name beneficiaries for retirement accounts, or to update beneficiaries when life changes occur. All new parents should also revisit their retirement accounts, and make sure that their spouse and/or child is listed as a beneficiary of those retirement account. If they are naming minor children as beneficiaries, however, they need to name an adult as a custodian for those accounts, under the California Uniform Transfer to Minors Act (CUTMA) to age 25, or name a trust, or a trust created under a Will, to hold that money. If they just name the child directly, the court must appoint a property guardian and that's the least good solution. Guardianships are restrictive and terminate when a child reaches age eighteen.
Planning for a new baby's future, while terrifying, also gives new parents the peace of mind of knowing that the baby will be well provided for, no matter what happens. Most of my clients find that they actually feel relieved to get a basic plan done. If you are a new parent and have estate planning questions, feel free to get in touch and to share this article with any new parents that you know. You can email me at email@example.com or call me at 650/327-0088. You can also download my book, The Family's Guide to Wills and Estate Planning, for free.