Congratulations on your bundle of joy! At Hollingsworth & Zivitz, we
hope for nothing but the best for you and your family. As such, we feel
there are few things you should do whether you’re just starting
a family or adding to it. The following tips will help ensure your family
is protected and provided for in case the worst comes true.
Draft a Will
This should be the first item on your to-do list. Not only can a will be
utilized as a means of distributing your assets, but it can also be used
to select a guardian you trust to care for your child in the event of
your death. If no guardian is appointed by will, it is up to the state
to find a suitable candidate, who may not be your first choice. Finally,
a will lets you select who will be the executor of your estate. The executor
not only ensures your assets are distributed according to your wishes,
but is also responsible for filing tax returns, paying creditors, and
other administrative tasks. Thus, it is important to select someone you
can trust to fill this role.
Listed beneficiary plans, such as life insurance, retirement plans (401k,
IRA, Roth IRA, etc.) and other plans, require you to designate a beneficiary,
or beneficiaries, of the plan’s funds. While it is a major benefit
that these plans avoid probate, there can be some drawbacks to the plans
if you don’t update your plan’s listed beneficiaries. For
instance, say you want your life insurance to be distributed equally amongst
your children, so you list your current 2 children as 50% beneficiaries
each. Then, you have a third child, however, you fail to update your beneficiaries
to include the third child before you pass. In this scenario, the third
child would be omitted as a beneficiary and entitled to nothing from the
plan. Alternatively, if you forget to update your beneficiary after they
pass away, then the funds from the plan will be transferred into your
estate to be probated with your other assets.
Get Life Insurance
Not only can life insurance provide your child and family with much needed
support funds in the event of your death, but can also be highly valuable
in ensuring your debts are paid off, allowing your child to inherit your
estate unfettered by high dollar claims, such as a mortgage. Ideally,
you will have at least two policies set up: one for the healthcare and
maintenance of your child, the other to pay of your creditors and probate
costs. Additionally, you can combine the life insurance policy with a
trust to allow for long term management of the funds.
Set-Up a Family Trust
Even for those with little assets, a Family, or Minor’s Beneficiary,
Trust can be a powerful tool for providing for the care and support of
your children. The Uniform Transfers to Minor Act limits the amount children
under the age of 18 can receive directly through inheritance, and any
of the excess must be placed in the hands of a custodian. While the custodian
does take care of the property until the age of 21, there are some drawbacks
to this. First, only one custodian can be appointed to manage the assets.
Second, the custodial relationship ends at the age of 21, providing no
long term planning. Setting up a Minor’s Beneficiary Trusts allow
for co-trustees and for the trust to continue past the age of 21. Furthermore,
family trusts are easy to implement, and can even be included in your
will. However, we recommend setting one up during your life to take advantage
of the yearly gift exclusion and fund the trust in your lifetime, reducing
the size of your estate while increasing the income earning potential
of the trust.
Obtain Limited Power of Attorney Documents for Your Children’s Caregivers
Not all estate planning implications require your death to have a use.
Often, parents need a break and take a short vacation while leaving the
kids with Grandma or another caregiver. There’s certainly nothing
wrong with this, but parents should strongly consider giving these caregivers
a Limited Health Care Power of Attorney for the kids and a Limited Power
of Attorney for their property. The Health Care Power of Attorney can
be written in a way that allows for the caregiver to make basic health
care decisions in the event of an emergency, while leaving the major decisions
to the parents. Similarly, the Power of Attorney over property can also
allow for the caregiver to maintain the property during the owner’s absence.
Establish a Plan for College
Your newborn may be small now, but in just 18 short years, they will be
all grown up and ready to go off to college. More than likely, your child
won’t be the only thing to grow in that time. In the last 20 years,
in-state tuition rates have increased nearly 300%, and are estimated to
increase to $40,000 a year by 2030. Thus, it is important to start planning
for college now, rather than the year in which your child will be applying
to universities. Savings bonds and accounts can help but there are better
options. A 529 Savings Plan is a powerful and efficient tool for college
savings. Not only will a 529 Plan allow for you and your spouse to contribute,
but your relatives and friends as well. Furthermore, contributions to
a 529 Plan may qualify you for current year tax credits and deductions.
Additionally, a 529 Plan ensures that the money put into the Plan will
be used for educational purposes, as the funds are not only controlled
by the parent, but can only be used for educational purposes. Should a
child choose to not go to college, the parent can simply change the beneficiary
of the account, or even use it themselves to attend classes.
The attorneys at Hollingsworth & Zivitz are ready to help you with
your estate planning needs. It is important to begin estate planning today
rather than wait. Even if you already have an estate plan, it’s
important to remember to review it every year to ensure its conformity
to your wishes. Call us at 317-569-2200 to connect with our team.