By Associate Attorney Danielle Nodar
There are plenty of things new parents need to tackle on their to-do list to provide the best environment and future for their child. However, one big thing that often gets overlooked is planning for the unexpected with estate planning. Some of the factors new parents should keep in mind when considering estate planning are:
1) Naming a Guardian for Minors
One of the most important considerations a parent can make is naming a legal guardian for their minor children. A guardian is the person who will assume responsibility for all aspects of your child’s care if they are under eighteen when you pass away. This person will make all medical decisions, educational decisions, and step into the role of the parent in the eyes of the law.
In North Carolina, the only way a parent can designate a guardian is through their Last Will and Testament. A guardian named in a will is usually appointed by a court unless the person is unfit or incapable. Without a named guardian in a will, a court chooses the guardian based on its determination of what is in the best interest of your child. This may result in loved ones arguing over your children or the guardian being someone you would not have chosen.
2) Managing Inheritance for Minors with Trusts
If you leave assets outright to a minor child, those assets will be kept in a custodial account to be managed by a surviving parent or legal guardian. The adult in charge will manage the money for the child’s benefit until the child turns eighteen or twenty-one and inherits the remaining assets outright. Even when a child reaches the age of majority, many parents worry about a child’s ability to manage finances on their own, especially if it is a large amount of money being inherited. To have more control over your child’s inheritance, many parents set up a trust for the benefit of their children. Parents can create a trust with either 1) a revocable living trust, which is a separate trust agreement that is funded by the parent with their assets during their lifetime or 2) a testamentary trust, which is created in a will and only goes into effect at the death of the parent.
Both types of trusts allow the parents to name a Trustee to manage any inherited assets for children until the child inherits outright at a later age, such as twenty-five, for example. The Trustee will manage the assets and make distributions of the funds for your children’s health, education, maintenance, and support according to the terms of the trust. You can determine how much discretion you give the Trustee is managing the trust, and you can also provide them with clear guidelines of what are permissible expenses.
3) Updating Beneficiaries on Financial Accounts
If you have accounts that allow you to name a beneficiary, such as life insurance, retirement, or investment accounts, those funds will automatically go to the named beneficiary, even if your will names different beneficiaries. If you are creating or updating your will to include children, it is important to review your beneficiary designations to make sure that those assets will go where you want them to and that your plan works with both your will and beneficiary designations.
4) Updating Your Living Documents
Another key part of estate planning is naming who would make legal or medical decisions for you in an emergency where you cannot make those decisions for yourself. By naming agents under a healthcare power of attorney and durable power of attorney, you can ensure that if you become incapacitated, someone you trust can access your funds to care for you and your child and make medical decisions for you until you recover.
5) Considering Life Insurance
Many new parents consider life insurance to ensure funds are available for your children’s needs if they pass away while their children are still young. There are many factors to consider when looking into life insurance but finding a trusted insurance professional to assess your family’s specific needs is the first step in the process. Finally, if you do create a trust for your child, you can name the trust as a beneficiary of the life insurance policy, which would allow those funds to be used by the Trustee for your child’s benefit according to the trust’s terms.
If you have questions about how to create or update your estate plan to best protect your family, please call Jesson & Rains!
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