Estate planning for your new bundle of joy should be a top priority, right along with scheduling doctor appointments and caring for the well-being of your new baby.
Attorney and author of the 2015 article "Estate Planning for New Parents," Gary Altman elaborates more on the importance of proper estate planning regardless of your economic status:
It's estimated that around 60 percent of all Americans will die without proper estate planning documents in place, leaving their estates to be divided and taxed according to predetermined federal and state laws, often in ways they didn't intend.
The biggest myth in estate planning is that you have to be ultra-wealthy for it to matter. Parents, this is flawed in every possible way. Regardless of the size or value of your assets, peace of mind only comes in having a thoughtfully and professionally prepared estate plan.
A will is simply a written document with instructions for the distribution of an individual's assets after death. Scribbling something down on a piece of paper and hiding it in your sock drawer? That's one way to do it. Playing attorney for a day with a "Do-It-Yourself" kit like the ones sold on TV or at office supply stores, that's another.
Unfortunately, both of these approaches are nothing short of a disaster. Incomplete, incorrect or outdated wills are about as good as not having one at all. Whether you've got a large estate or a small one, the only surefire way to ensure that your wishes are honored is to have a legitimate, professionally prepared, current will that has been witnessed and stored properly for safekeeping.
Whether you have many assets or not, it is essential for families to clearly define who should care for your children should you become unable to do so. A court will normally honor the wishes of the parent to determine who will become their legal guardian(s) for both the long and short term. However, if these decisions are not formally put into writing (again with the assistance of an experienced estate planner), you have left it up to a judge to make decisions for you, sometimes after a messy and costly court fight.
Advanced Health Care Directives
Think estate planning only has to do with death? Think again! Advanced Health Care Directives are instructions specifying what actions should be taken for your health in the event that you are no longer able to make those decisions due to illness or incapacity. A "Living Will" is one form of an Advanced Health Care Directive. It records your wishes regarding various types of medical treatments, such as resuscitation, life support, artificial feedings and organ donation. A "Medical Power of Attorney" (also known as a "Health Care Proxy") names the specific individual(s) you appoint make medical decisions on your behalf-again, if and only if, you become unable to do so. I encourage my clients to have both documents in place to provide the most comprehensive guidance and spare family members (who may or may not agree on what to do) from having to make end-of-life decisions for you.
Law Changes & State Taxes
Let's not forget, laws change. While your estate might qualify as off the hook on a federal level, you may still be subject to state estate taxes. Many states, such as Maryland, as well as the District of Columbia have moved away from the federal exemption level and exclude only up to $1,000,000 in assets. Virginia does not currently have an estate tax, but, again, this can change. (Note that if even if you live in Virginia, but own property, such as a vacation home, in a state that imposes estate taxes, you could be subject to the estate taxes of that state.) Furthermore, most individuals don't realize that state laws are very specific about what can and can't be in a will, trust, or medical or financial power of attorney. They may also have specific guidelines on who can and can't be a witness to a signing of a will or trust, and what formalities or protocols must be observed when signing.
When it comes to safeguarding your assets, shielding them against hefty estate taxes and providing for your children from youth into adulthood, creating a trust is the only way to go. There are various kinds of trusts, and your estate planning attorney will help you decide which one will do your assets and your wishes the most justice. Without such a tool in place, assets are more easily subject not only to taxes, but to abuse as well. The property in the trust is managed by a trustee-someone you appoint. Usually, this is someone who's good at handling money. It can even be a parent (although this may not be a good idea tax-wise) or a trust company. Having a trustee in charge means that the beneficiary can't squander the property.
After all, most people will agree that a 30-year-old is probably going to be more financially responsible than an 18-year-old. These are the types of safeguards you can put into place by using a trust.
Special Needs Planning
In cases of some physical and mental disabilities, including autism, Down syndrome and other disorders, a child may always need help managing her personal care and/or finances. In the past, many practitioners focused exclusively on preserving public programs and benefits for their care. However, many public benefits programs are inadequate and need to be supplemented with other, more reliable, privatized resources. Estate planning tools, such as Supplemental Needs Trusts, can help families manage private funds while also preserving one's eligibility for public benefits.
Life insurance can provide needed funds for survivors upon the death of the insured. For most families, the need for life insurance is greatest early in life. When children are young, the financial burdens of supporting the family are the greatest and create the need for life insurance. Determining how your life insurance policy fits into your estate planning is crucial. As with all of your financial interests, naming beneficiaries and establishing exactly how you intend any distributions to be managed is critical. Mistakes are costly and next to impossible to reverse after death.
Given the wealth of information we have housed on our computers and the Internet today, smart estate planning includes addressing how to handle digital assets in the event of death or incapacity. For example, what would happen to an email account or a personal or business website? Were there online financial or other accounts? What about passwords? Your estate plan should establish an inventory of your "digital estate," designate someone to manage it, provide for access to it and supply instructions on how you want it managed.
The Bottom Line
Parents want what is best for their children. All too often, people put off estate planning because they think they don't need it, they think it can wait, they think they can't afford it or they simply don't want to think about the prospect of dying. As a parent, however, tackling your estate planning early on will give you an immense sense of relief knowing that you have done everything possible to ensure that your child is going to be provided for if/when you are unable. An experienced estate planner should make the process quick and painless, freeing you up to tackle those other choices…like middle names and godparents.
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