Starting a family comes with an entirely new set of responsibilities. There’s a lot to think about, from choosing the best car seat to figuring out work and childcare schedules.
One of the most important, yet frequently overlooked, necessities is setting up a will. This crucial document outlines tons of important details should you pass away, including what happens to your child.
Estate planning for parents can be broken down into just a few digestible steps. Here’s everything you need to think about, plus tips on how to organize all of your documents for the ultimate peace of mind.
Estate Planning for New Parents
1. Draft a Will
About 60% of Americans don’t have a will. Setting up one can be simpler than it seems. A will is a document that outlines how you want things handled after you pass away, including distribution of assets and how any minor children to be cared for.
While some people with complex investments and multiple properties may want to hire a lawyer for help, younger, healthy individuals can seek out online services that can walk them through the steps to make a will and sometimes have no initial cost. SoFi, for instance, has partnered with the life-insurance firm Ladder to help customers apply for life insurance.
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Then, you can follow the execution instructions, which typically include signing your will in front of eligible witnesses. Check your state’s individual requirements. Sometimes, you must have your will notarized in order to become valid. Many banks and public libraries offer this service for free.
If you’re married, consider drafting a joint will with your spouse. This gives you the ability to plan for different scenarios, like what happens when one spouse passes away versus both passing away at the same time. Remember to regularly update your will whenever a major life change occurs, like having another child or adding new major assets.
2. Choose an Executor
When you’re setting up a will, you’ll need to choose an executor. This is the person responsible for handling the legal and logistical aspects of disbursing your assets. They are also responsible for filing any remaining taxes and settling your debts.
Consequently, your executor should be someone you trust and who has the ability to handle the tasks involved. This is especially important when you have young children because the executor’s ability to tie up your finances will impact your kids’ inheritance.
Once you choose an executor, let them know that you’ve chosen them. Give them a quick rundown of what to expect, and also let them know where to find your will and other relevant documents.
3. Name a Guardian
When you start having kids, you also need to name a guardian to care for them if you pass away before they reach legal adulthood. There are a lot of things to consider when making this important decision.
First, think about the potential guardian’s ability to care for children. Are their grandparents too old to take care of them? Does the guardian live far away from other friends and family who could serve as a support system?
Also consider their financial capabilities and their ability to manage any assets you leave to help pay for your kids’ expenses.
Finally, think about your values and who would raise your children in a way that’s similar to your own parenting style. Also realize that your kids will be going through a tough time, so their guardian would ideally be someone whom they trust and would provide emotional comfort.
If you have more than one child, make sure you name a guardian for each one, even if it’s the same person. That means you need to update your will every time you have a new baby. Be as explicit as possible when naming a guardian; for instance, if you pick a sibling and their spouse, name both individuals as coguardians.
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4. Set Up the Right Accounts
Some types of accounts may help you pass on your assets without having to pay as much in taxes. It’s an important part of the estate planning process and can help you maximize the amount of money you’re able to pass onto your kids. A trust fund can protect the money from being spent too quickly, either by the guardian or your children themselves.
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You can implement safeguards as to how much money can be taken out and when. Even if your kids are of legal age, you can put annual withdrawal limits on the trust to prevent a young adult from overspending. Alternatively, even if you pick a guardian to oversee the emotional wellbeing of your children, that same person may not be the best at handling money. Choosing a trust can limit their spending on behalf of your children as well.
There are many different types of trusts, so you may consider consulting an estate planning attorney to choose the best one for your family’s needs.
5. Designate Beneficiaries
The final step of estate planning for parents is to designate a beneficiary for every account and insurance policy you have. Include bank accounts, retirement and other investment accounts, and life insurance policies.
When choosing beneficiaries, find out how each type of account is taxed for the recipient. Also create a list of all of your account numbers and other pertinent details and include them with your will. This makes it easy for your executor to locate all of your assets. Include debt information as well, like your mortgage and/or auto loan servicer.
You can also update beneficiaries as life changes. For instance, you might initially name your spouse as your life insurance beneficiary. But if they pass away before you, it’s time to update that designation to someone else.
6. Safely Store Your Documents
Once you’ve drafted your will and signed it in accordance with your state’s laws, it’s time to store all of the appropriate documents to make it easy for your executor and beneficiaries to access.
Lots of documents are now stored online, but you’ll still need to keep your original, signed will in physical form. You can keep it in a fire-proof box at home, or in a safety deposit box at your local bank. Be sure your executor knows where and how to access your documents.
7. Outline Access to Financial Accounts
Remember to keep an up-to-date list of all your financial accounts that need to be taken care of. Bank statements should include the account numbers to make it easy for your executor to find. Also include the location of any valuable items, like art or jewelry.
Finally, it’s helpful to include the contact information for any professionals you work with, like an accountant, financial advisor, and estate attorney. Include insurance policy numbers, loan and credit card details, and any other financial accounts that would need to be closed.
Estate planning for parents isn’t a one-time event. Get started when you have your first child, but also review your intentions and make changes at least once a year. That way, you always have an up-to-date and comprehensive will that reflects your current financials and family structure.
Need some help setting up your will? It’s easy with SoFi and Trust & Will’s partnership. The leading online estate planning platform in the U.S. offers trust, will and guardianship estate plans, and SoFi Members can receive a 10% discount on services.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.