Estate Planning For New Parents

From our friends at Gevurtz Menashe

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 assures that your children will be taken care of—physically, emotionally and financially—should something happen to you.

Whether you’re adopting or giving birth to a new baby, here are the vital pieces to think about when planning for your family’s future:

Life Insurance

Life insurance provides protection for your loved ones in the event something should happen to you. Upon your passing, the policy will pay a benefit claim to the beneficiaries named in the policy. 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.  

Will or Trust?

The most important pillar of your estate plan will be a Will or Revocable Trust. These two different documents serve essentially the same purpose: allowing you to decide how and when your assets will be distributed to your beneficiaries. 

Revocable Trusts are usually more complicated and expensive to set up than a Will, but offer two main advantages: 

  • Your loved one will avoid probate (the court process of proving your Will and distributing your assets), making the process private and streamlined.
  • A plan for incapacity allowing your successor trustee to step in to manage your assets in the event that you’re unable to.

A Will is a simpler document and can be a great option for people with less complicated estates. The basic documents include:

  • The personal representative (sometimes called an executor)
  • Who inherits what – including establishing a testamentary trust to manage inheritances for minors from your life insurance, retirement accounts, and other assets they may inherit through your Will
  • Guardians of minor or disabled children

Beneficiary Designations:

Understanding the world of retirement benefits (IRAs, 401ks, pension plans, etc.) is essential to developing an estate plan. Your 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. 

Advance Directive & Durable Power of Attorney:

While a Will or Trust are the cornerstone(s) of an estate plan, there are a few additional documents that are necessary in case of an emergency that should be included:

A Health Care Advance Directive allows you to appoint a Representative to carry out your health care instructions in the event you’re unable to communicate.  If you’re 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. 

Similarly, a general Durable Power of Attorney appoints someone you trust to act on your behalf with respect to legal and financial matters.  For instance, this person may have the authority to, pay bills, file taxes, and transfer property on your behalf and for your benefit. 

Where to Begin?

We recommend parents of minor children have a properly executed estate plan—and that it be updated on a regular basis. Big life events such as marriage, divorce, or a change in assets (inheritances) can dramatically change how you want your estate to be handled.

Additionally, because tax laws are always changing, you’ll want to be sure these don’t negatively affect your plan. In general, we recommend reviewing your plan once a year. 

When it comes to the end-of-life decisions, we believe it’s important to prepare. The law provides for many options when it comes to entrusting your assets 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!

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