New parents have many things to think about. Is it a boy or a girl? How do we decorate the nursery? Day care or a nanny? Some of the most important questions, however, are put on the back burner because most new parents either choose not to discuss them or can’t come to any conclusions with their spouse.
Perhaps the most important decision for a new parent is that of choosing a guardian for their children. His brother or her sister? My parents or yours? For some, choosing a guardian simple. Perhaps they only have 1 sibling (and they get along) or a close cousin or best friend. For others, however, the choose of a guardian can be agonizing. Whether it is because they do not know who to ask, don’t have anyone they trust or can’t agree with their spouse, often times, the inability to make a decision on a guardian is the #1 reason why new parents do not do wills.
This is a mistake. The reason it is a mistake is because of what will happen if they do nothing. In the absence of Last Will & Testament appointing a guardian for minor children, family members can fight for custody and/or visitation rights. They can fight for control of the child’s inheritance. If you thought that Thanksgiving with the entire family was awkward, wait to see what happens when everyone thinks they are the best choice to raise your children.
The best tip I can give to new parents is to make a decision. You need to sit down with your spouse and talk about what is best for your children. Many young parents will want to choose their parents as guardians. This may be your only choice, but consider the age of your parents and the physical demands of raising young children. Are your parents able to do it? If you must appoint your parents, be sure to also name a back up guardian – just in case something happens to your parents or they are unable to do it.
A minors Trust is a provision in a will that allows parents to determine how their children will inherit. In the absence of a Minors Trust, a minor child will assume control of their inheritance at the age of 18. A minors trust allows a parent to set age milestones for when their children will have control.
Lets say that parents have two young children. The Wills can state that each child’s portion will be placed into a trust until the child reaches the age of 21. At that point 1/3 of the child’s inheritance will be given to him. The next third at 25 and the final 3rd at 30. These are only examples. A parent is free to choose the ages and percentages that they deem appropriate.
The money in the Trust, though not in the control of the child, can be used for their Health, Maintenance, Education and Support prior to the stipulated ages. Additionally, the parents name the Trustees of the money. The Trustee can be the same as the guardian, but there is no such requirement.
When choosing to include a Minors trust in your Will, be sure to organize your beneficiary designations properly. Keep in mind that if your children are named as a beneficiary of an investment account or life insurance policy, the proceeds of such will pass to them directly, outside the terms of the will and thus outside the terms of the Minors Trust.
Life Insurance is a very important aspect the estate plan of new parents. Most young parents will buy Term Life Insurance. A term policy is a policy in effect for a term of years (15, 20, 30). The premiums are affordable because no cash value accumulates in the policy. The only purpose is to provide protection against the loss of income that would occur when a parent passes.
Policies should be purchased on the life of each parent, but perhaps not in equal amounts. If one spouse stays at home with the kids, a small policy is advisable because there is no income to replace. The only cost that would arise would be that of childcare. A larger policy should be purchased on the life of the income earner. When thinking of amounts, consider how much your spouse and children would need if they lost your income. Such factors include college, weddings, Bar and Bat Mitzvahs, mortgage on the house, cost of living and security.
If you are a soon to be new parent seek the advice of an Estate Attorney and/or financial advisor to discuss these important issues. Inaction can only harm your surviving spouse and children.