Estate Planning for New Parents

Congratulations on becoming new parents!

I am sure that amidst all of the excitement of preparing the nursery, buying baby clothes, and gathering that mountain of diapers, there is some anxiety of how to keep this tiny bundle of joy protected. This is your guide to estate planning for new parents. No matter if you are giving birth, adopting, or if this is a grandchild, you want to keep that new family member safe to the fullest capabilities. 

As a new parent, you are taking on a new level of responsibility. It is very easy to become hyper focused on your child’s immediate needs, which is an incredibly important task. However, an equally important yet often forgotten task is the need to prepare for how to protect your child in the event something happens to you.

Now no one likes to think about planning for their child’s future in a scenario where they are not in it, especially not right after you have welcomed this new life into your own. This seems inconceivable. But for new parents, ensuring that they have a clear and comprehensive estate plan is one of the best ways to protect not only themselves, but their new family member. 

One of the most important steps to take is to set up your estate planning documents. We are here to help make this task a little less daunting. We will help you create a Trust where you can name who will manage your assets if you are no longer able to, a will where you name guardians for your child, and set up financial and medical powers of attorney for you (and your children once they are eighteen).

The Trust

If your kids are minors when you pass away, they will not be able to take control of the inheritance left to them until they turn 18. By creating a Trust, you can appoint who will take care of and manage the assets until your children are able to have direct control. You can leave instructions for the Trustee so that they are able to understand your wishes clearly, and you can feel comfortable that the person you have left in charge will honor what you wanted. 

We also include Minor’s Trust provisions within your Estate Plan to provide instructions to the Guardian of your child if they are still under 18 when something happens to you. These provisions can be customized to your family; we know one size does not fit all. This will allow the Guardian to use the money for your child’s benefit, to ensure your child is fully cared for, without there being any issue of your child’s access to the money. 

Now for some people, they want their children to have direct control of the inheritance once they turn 18. However, for others they have different goals. Maybe you want them to finish college, for some it’s giving a certain percentage or dollar figure per year until they reach a certain age. Whatever the parameter, we can help you lay out a comprehensive plan that fits your child and their needs. 

Your Trust will also include provisions for how the money should be held and managed once they become adults. 

You can choose to either have your children inherit the estate outright, or you can include a Generation Skipping Trust. If you choose to include the Generation Skipping Trust, the inheritance would go into a protective Trust, like a lockbox, for their lifetime. You can give them the position of Trustee, or if there is concern that they have poor spending habits, can put someone else in that role to manage the money on their behalf. 

This protective Trust helps to ensure your wealth stays in your family line. It protects your children’s inheritance from creditors, lawsuits, bankruptcy, the IRS, and even from it being taken in a divorce proceeding. Your child is able to benefit from their inheritance for their lifetime, and the Generation Skipping Trust ensures that the remaining estate will ultimately pass tax-free to your grandchildren. That is where the skip comes from; it will skip a tax when it passes to your grandchildren. 

The Will

 When you are a new parent, the most critical component of your Will is naming the guardians for your child. This is the most intimate decision that you can make. You are deciding who will raise and care for your child if you are unable to do so. 

When walking through who to name as a guardian, some of the considerations seem obvious. For example, you want to make sure it is someone that you trust, who will honor your wishes and who will have your child’s best interests at heart. You are essentially trying to create yourself in a new person. 

However, some considerations that my Northern California clients look at when naming a guardian are not as intuitive. These can include what religion the child will be brought up in, the financial resources available to the potential guardian, and where the child can live. Choosing a guardian is not a simple task, but your attorney should help guide you so that it becomes more tangible. 

You may also wonder if you should include your child in the decision of who to name as their guardian. We recommend that if you have a child who is mature enough to comprehend the issue, and who is emotionally mature enough to understand what having a guardian would mean, it can help to have them involved. You can help explain why they would need a guardian, what things they care about, what things you are considering and why, and see how they react to the different people you are considering. 

If you choose to have your child involved in the conversation, it is important to keep an open mind, and if they disagree to be able to explain to them why you chose the person you did. This can help them understand and feel like you have taken their feelings into consideration. 

Planning for children with special needs

If you are a parent of a child with special needs, caring for your child you are likely involves juggling their schooling, any therapy needs, doctor’s appointments, medical devices and medications, and much more. You spend so much of your time and energy focusing on helping your child get the most from life. But what happens if you become incapacitated or suddenly pass away. 

It is very important to have created a plan that provides for your child’s care even if you are unable to be the one to directly provide it. By pre-planning, you ensure that your child’s needs are taken care of no matter what happens to you. The planning for your child should be very specific to ensure that any inheritance that your child receives does not disqualify them from government benefits they receive or may receive. 

During our planning meeting, we will discuss how you will fund the Trust and who will be named as Trustee after you to ensure that your child’s needs are still provided for. We want to ensure that your child is protected to the fullest extent no matter what the situation. 

Further, once a child with special needs turns 18, you lose the legal right to make medical or financial decisions. It doesn’t matter the extent of the disabilities; this is simply the law in California. What this means is that you will want to become your child’s Conservator. You will be the guardian (or protector) appointed to manage your child’s financial affairs and daily life. You should become familiar with the process of filing for Conservatorship before your child turns 18. 

Advanced Health Care Directive

Now while it is important to plan for your children’s future and include protections for them, it is equally important to ensure that you are protected and cared for. It can become so easy to let your care fall to the side as you focus on your new addition to the family. However, we want to ensure that your needs do not fall through the cracks. 

One of the most important documents for you to have is an Advanced Healthcare Directive. If you are over the age of 18, you need a written Health Care Directive. Often the assumption is made that your spouse could automatically make your medical decisions if you are unable to. However, when HIPPA laws changed in 2004, it became essential to have a written directive. No person has the power or right to make your medical decisions unless you give them that ability.

A Healthcare Directive allows you to name an agent to act on your behalf concerning medical matters if you become incapacitated and are unable to communicate your wishes and decisions to your doctor. 

If you do not have a written directive, the Court may get involved and appoint someone to make those decisions for you. This may or may not be someone that you would want, and it means that in a critical point the Court has to get involved. 

By leaving instructions for your end-of life care within your directive, you can give some much-needed guidance to your loved ones. This guidance allows them to not have to assume what your wishes would be and can remove the burden from their shoulders when it comes to stopping treatment, what to do with your remains, and more. As such, it is very important to not only make sure that your current wishes are in place, but to also discuss your wishes with the person, or people, that you have named. This gives them the chance to ask questions, for you to explain your thinking, and can provide some much-needed peace of mind during what will likely be a very challenging and emotional time. 

The last thing you should be worried about is who can make your medical decisions if the worst happens. We will help guide you through these decisions and ensure that your wishes are clearly outlined for your loved ones. 

Moreover, once your child turns 18, it will be imperative that they have a Healthcare Directive created. You will be unable to make their medical decisions unless they have named you. 

Durable Power of Attorney

Along with the other documents we have discussed, you should also have a Durable Power of Attorney. A Durable Power of Attorney allows you to name an agent to act on your behalf concerning financial matters if you become incapacitated. If you have issues traveling to the bank or want someone else to handle your bills and finances, you can achieve this by using this Power of Attorney. This document allows your agent to care for your financial matters on your behalf without having to prove any kind of medical disability. It also gives them the ability to fill out paperwork necessary for any assisted living or nursing home admissions. 

It is important to note that the Durable Power of Attorney is only in effect during your life. Once you pass away, the document cannot be used to manage the assets that you had. 

Financial Planning 

Another important aspect of planning when you have a new family is your financial plan. Assets such as your 401(k), IRA, and life insurance policies will have beneficiaries on them. After you establish your Trust, it will be important to discuss who the beneficiaries on your policies should be. 

I want to focus on two aspects of your financial plan in particular and give you a brief overview: Life Insurance, and 529 plans. 

Life Insurance

Life insurance is an important piece of your financial plan. While your estate plan will ensure that the children’s needs, both physical and emotion, are met, life insurance can help make sure that their financial needs are also met. Life insurance will make sure that funds are available so that either your surviving spouse receives financial help, or that your child’s guardian has financial help to raise your child. 

There are multiple options when considering life insurance, and it is important to know what questions to ask. We are able to help guide you in this process and connect you with the right professional to make sure that you and your family are protected and cared for. 

529 Plans

Another important aspect of your financial plan is a 529. A 529 plan “is a tax-advantaged savings plan designed to encourage saving for future education costs.” These are known as qualified tuition plans. There are two types of these plans: prepaid tuition plans and education savings plans. 

Prepaid Tuition Plans: These plans let a saver purchase units/credits at participating colleges and universities for future tuition and mandatory fees (but not room and board) at current prices for your child. 

Education Savings Plans: These plans let you open an investment account to save for your child’s future qualified expenses – tuition, mandatory fees, and room and board. You can typically use these funds at any college or university. 

There is significantly more to know about these plans, but I hope that this overview was helpful to begin understanding the importance of these financial plans.

If you have questions or want to discuss any of the above topics further, please contact us at 800-244-8814 to schedule a consultation. We’d be happy to meet with you to discuss your family’s unique needs and help you build a solid wall of protection around your children if anything should happen. 

If you have any further questions about asset protection planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at our California asset protection office at 800-244-8814 to set up a consultation.