Tax Planning for a Baby: Part 2
If you’re planning for a new baby, you may have already thought about child-proofing the house to protect your child. Have you also considered estate planning to make sure your child is protected? Even if you feel like you don’t have much of an “estate” built up yet, there are some important estate planning techniques that should be implemented, especially for new parents.
- Create or update your wills to ensure that your assets are distributed according to your wishes.
- Name a guardian for your children and discuss your wishes with the guardian. Sometimes people put this off because they don’t want to hurt anyone’s feelings or because it’s simply not a fun topic to consider; but this is a very important area to address. You should choose someone who respects your values and can provide a supportive environment for your children. Choosing a guardian also helps avoid potential arguments over guardianship that would be even more difficult for children and families involved.
- Consider setting up a trust. Trusts add protection from creditors and are especially important if you are in a profession like medicine or law in which you have a higher potential of being sued. Unlike a will, assets transferred through a trust avoid probate, which can add time and expense to estate administration. Trusts also offer more privacy since they are not a public document.
- Take a look at life insurance needs. Many people have limited life insurance in place to cover final expenses and provide some financial cushion. Once children enter the equation, parents may be looking for more protection to pay off the mortgage, provide for college education, and help the family to maintain their current standard of living. Review the policies you currently have at work and those you may already own to help determine if you should increase the value of the policies.
- Review beneficiary designations for retirement plans and life insurance to include children or a trust for your children’s benefit.
By implementing a few basic estate planning techniques, you’ll help make sure your child is protected financially. As I’ve learned from some of my friends, once the baby arrives, you may find you barely have time to shower some days. Make sure to get as many of the “rubber duckies” in a row as you can now.