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Amid buying baby clothes, diapers, and toys, setting up a nursery, and managing the sleepless nights of new parenthood, estate planning may not be on the list of priorities for new parents. What about considering how a child’s everyday needs would be met if they pass away: making sure they have well-balanced meals, seeing doctors for checkups, and getting a good education? Admittedly, it is an uncomfortable thought, but nevertheless important to address through estate planning.
Estate planning is often bigger than just wills and trusts. Life insurance policies and retirement accounts are often considerations which may be forgotten – and by no means should be. For instance, if a parent passes away while their child is still a minor, the benefits from a life insurance policy which could secure that child’s future – including daily living expenses to college tuition – could be impacted.
A new parent (or parents) should coordinate their estate plan with any life insurance and other assets. Most often, new parents name each other as the primary beneficiary of life insurance, with children as the contingent beneficiaries.
However, leaving the child as a beneficiary, without any planning, forces the imposition of a Florida guardianship for that minor child to oversee the funds. Court costs would be incurred and proceeds would be paid to a court-appointed guardian – whether the parent or not – to represent the minor’s interest, all of which can deplete these funds. The guardianship would continue till the minor child reaches the age of majority. Guardianships of minors can be avoided by new parents doing appropriate estate planning. For example, a testamentary trust may be appropriate, but the testamentary trust should then be named as the alternate beneficiary on the life insurance, so as to avoid the proceeds going through guardianship and instead to the trust.
A similar structure may be possible for retirement plan benefits, in naming minor children as contingent beneficiaries, or the testamentary trust. Tax consequences should be reviewed by both a financial advisor and an estate planning lawyer.
Also important is for new parents to name a guardian for the minor children. Naming a guardian for a minor is important, so the courts do not have to do so. This may be a sore spot for some parents as each often wants to name their own family members to serve as guardian. This is also a discussion for new parents to have with their estate planning lawyer, to devise a way to have both parents’ sides of the family involved in custody and distributions of funds for the minor children’s life.
Planning for contingencies with an estate plan is a critical issue for new parents to address and should not fall at the bottom of the to-do list. New parents should not delay in consulting with their trusted estate planning lawyer.