Estate Planning Has Added Importance for Families With Young Children

The AL pennant race, watching Piping Plovers at Crane Beach, sweet corn from a local farm: these are all more enjoyable than a discussion about estate planning.

So, while most people have at least thought about setting up a will, many people never get around to it. However, even if estate planning is not a top priority for most people in the under-forty crowd, it takes on added importance when families begin having children.

The most fundamental piece of a young parent’s estate plan is the will. Everybody knows that a will is the document that says who receives your property when you pass away. But did you know that a will is also the document that nominates the legal guardian of minor children if something happens to the parents? It’s tough to think about, but parents have a responsibility to select someone that they trust to take care of their children after a tragic event.

Furthermore, should tragedy strike young parents, their children would gain full access and control of their inheritance upon reaching eighteen years of age. Think about yourself at age eighteen. While these children are old enough to vote and go to R-rated movies, they likely do not yet have the maturity or responsibility to properly manage a windfall of substantial wealth.

Fortunately, by placing their assets into a revocable trust, parents can provide an inheritance that both benefits and protects their children. A trustee would manage the inheritance and use it to pay for the children’s needs, but the children could not access the trust themselves. Then upon reaching a certain age, when they are more mature, the children would receive their inheritance outright.

Of course it is easy to talk about protecting an inheritance, but most young families do not have huge amounts of money in the bank. Even so, many parents are surprised by how quickly their estates add up, especially when you include 401(k)s, IRAs, equity in a home, and life insurance.

This raises another point: all new parents should obtain term life insurance. Term life insurance is cheap and easy to obtain, and provides a pool of wealth that serves to replace the income of a deceased spouse. In a two-earner home, the loss of one income can have devastating effects. Term insurance provides a safety net against this loss of income, but responsible parents should reinforce the net with a revocable trust, to prevent their eighteen-year-old children from accessing the substantial death benefit.

For older couples, a proper estate plan will seek to reduce taxes, avoid probate, and protect against long-term care expenses. While these issues are of less concern for younger couples, once a family begins raising children, their responsibility to protect their children is even more important.

This blog entry is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.