With the arrival of a new baby, it’s likely you’ve spent months checking off the “to-dos” in anticipation for the birth of your little one; painting the nursery, stocking up on diapers and finalizing the birth plan. But as you’re reading up on ‘What to Expect When You’re Expecting’, have you considered planning for the unexpected? For new parents especially, estate planning is important because it ultimately assures that your children will be taken care of—physically, emotionally and financially—should something happen to you.
Whether you are adopting or giving birth to a new baby, here are the vital pieces to think about when planning for your family’s future:
Like other types of insurance, life insurance provides protection for those you love in the event something should happen to you. Upon your passing, the life insurance policy will pay a benefit claim to the beneficiaries named in the policy. Because life insurance benefits are payable in cash, they are an excellent tool to use for the payment of any estate taxes owed by your estate.
Because life insurance can have estate tax consequences, it is important to work with an estate planner to ensure your estate isn’t forced to pay more estate taxes than necessary – which would reduce the overall gift to your beneficiary. . Also, it is important to name the trustee of the trust established for the benefit of your little one in your Will or Revocable Trust — to avoid your children inheriting a large sum of money at age 18.
Will or Trust?
The most important pillar of your estate plan will most likely be a Will or Revocable Trust. These two different documents both serve essentially the same purpose: allowing you to decide how and when your assets will be distributed to your beneficiaries. Both a Will and a Revocable Trust give you control over:
Naming someone you trust to carry out your wishes
Estate tax planning
Naming who receives yours assets
Revocable Trusts are usually more complicated and expensive to set up than a Will, but it offers two main advantages:
Your loved ones don’t have to go through probate (the court process of proving your Will and distributing your assets). A trust makes this process private and streamlined, so your loved ones can avoid a potentially long, expensive court process.
You can create a plan for your own unexpected temporary or permanent incapacity in a trust so that your successor trustee can step in to pay your bills and manage your assets in the event that you are unable to, and continue to support your family with the resources available. This often avoids a potentially expensive court process to establish a conservator to oversee your estate.
A Will is a simpler legal document and can be a great option for people with less complicated estates. Various pieces of content are found in a will, but some of the basics are:
Who the personal representative (sometimes called an executor) of the estate is
Who inherits what – including establishing a testamentary trust to manage inheritance received by your minor and young adult children from your life insurance, retirement accounts, and other assets they inherit through your Will
Guardians of minor or disabled children
General tax planning
Understanding the world of retirement benefits (IRAs, 401ks, pension plans, etc.) is essential to developing a coordinated estate plan. Your estate planning attorney should advise you on the estate and income tax impacts of beneficiary selection and recommend beneficiary designations that fit within each unique estate plan. Retirement accounts provide many income tax benefits, but certain rules must be followed (and certain acts must be avoided) to maximize these benefits. Additionally, factors such as the beneficiary’s age play an important role in determining how these accounts will be taxed.
Health Care & Financial Proxy (Advance Directive & Durable Power of Attorney)
While a Will or Trust are the cornerstone(s) of an estate plan, there are a few other helpful documents that are necessary in case of an emergency that an estate planning attorney can help prepare.
Executing a Health Care Advance Directive allows you to appoint a Health Care Representative to carry out your health care instructions in the event you are unable to communicate. A Health Care Advance Directive also allows you to provide instruction regarding health care treatment and end-of-life decisions in the event something should happen to you. If you are rendered incapable of managing your own medical affairs as a result of illness or injury, a living will serves as the formal instruction manual of your wishes and decisions as they relate to medical care. A common example of this is the decision to be supported by any form of life support, including tube feeding.
Similarly, a general Durable Power of Attorney appoints someone you trust to act on your behalf with respect to legal and financial matters. You can use the document to define exactly the parameters for their actions on your behalf. For instance, this person would have authority to, among other actions, pay bills, file taxes, and transfer property on your behalf and for your benefit.
Choosing someone you trust to make both financial and health care decisions for you if you cannot make them for yourself means you will be in safe hands when you are most vulnerable. An estate planning attorney will help you through the process of selecting and appointing these important fiduciaries.
These contingency situations, while tough to think about, are truly a gift to your loved ones. In the event that you become incapacitated, they’ll understand your wishes clearly and they won’t be forced to seek a court order before they can get you the help you need.
We recommend that all parents of minor children have a properly executed estate plan—and that it be updated on a regular basis. Regular maintenance and adjustments are crucial aspects of any good estate plan. Big life events can dramatically change how you want your estate to be handled. For example:
The birth a child
A move to another state
A death in the family
Change in assets (receipt of inheritance)
Estate planning and tax laws are always changing too, and these changes might negatively affect your estate plan unless you keep it updated. In general, we recommend reviewing your estate plan once a year.
Where to Begin?
When it comes to the end-of-life decisions, we believe it’s important to prepare. We also understand that starting this process is the hardest part but our estate planning lawyers at Gevurtz Menashe are here to walk you through the process. The law provides for many options when it comes to entrusting your life’s work to the next generation, and it’s our goal at Gevurtz Menashe to create a plan that best protects your legacy. If you would like to learn more about planning for your family’s future, we would love to work with you!