5 Common Estate-Planning Mistakes After Having a Baby
This is the first in a series of estate planning articles from EZLaw™. EZLaw™ makes it easy to create a Last Will & Testament, Power of Attorney, or Living Will document, with the guidance of an attorney at a very affordable cost.
Most new parents will agree: It’s initially an overwhelming experience and many things that once seemed important suddenly get pushed to the back burner. But sometimes critical things also get ignored with the addition of a new family member. Among them: Estate-planning issues. Let’s look at the 5 most common estate-planning mistakes that parents make after having a baby.
5. Not putting enough thought into life insurance. Life insurance is designed to provide financial support for your family after you die. A key question to ask when deciding whether and how much life insurance to purchase is, “How many people depend on me for financial support?” Someone who’s single with no children may not need any life insurance or just enough to pay for funeral expenses. But a parent who works, perhaps supporting a stay-at-home spouse and children, may need a much larger life insurance policy. New parents without life insurance policies will want to consider purchasing a new policy and those who already have life insurance may want to adjust the size of their policy.
4. Not making financial gifts to their child. By law, you can give a gift of up to $13,000 a year to your child—and to anyone else. Your spouse can also give a $13,000 gifts to your children, too, all without being taxed on the transfer of assets. In total, you can gift up to $5 million in the course of your lifetime without paying taxes. The end result: If you have a large estate, it will significantly reduce your estate taxes after you die.
3. Not considering whether to set up a trust for their children. A “trust” is a legal entity that can hold onto and manage money and other assets for children until a particular time in the future. There are several varieties of trusts. A section 2503(c) Minor’s Trust, for example, can hold the tax-free gifts you make for your child until the child turns 21, at which point they’d gain control of the money. Alternatively, in your last will and testament, you can instruct your executor that sets up a trust for the benefit of your children. This enables you to appoint a trustee to manage the money and distribute it to your children at predetermined points in time so they don’t squander their inheritance.
2. Not naming a legal guardian. No parent wants to imagine that they’ll die while their children are still young. But it does happen. All parents of minor children need to prepare for the worst-case scenario and name legal guardians who will take responsibility for raising their children if they die. Although a judge will have to confirm your choice of a guardian, a parent’s express wishes are usually honored. Realize that naming a guardian isn’t a popularity contest, and although some people may have their feelings hurt, you want to name as guardian the person or people you think will do the best job.
1. Not updating your last will and testament. As soon as possible, every new parent should update their will to reflect the addition of a new family member. Unfortunately, many parents procrastinate, sometimes with serious repercussions. Take, for example, the headline-grabbing situation of Anna Nicole Smith, who gave birth to a baby daughter and lost her son to a drug overdose shortly before she, too, died of a drug overdose. She was survived by her infant daughter and left a last will and testament that hadn’t been updated since she gave birth. The will specifically excluded any children other than her son, and resulted in a drawn-out court case before her daughter’s inheritance was restored. Save your heirs the possible headache: Update your last will and testament as soon as possible after having a new baby.
Flickr photo by littleredhedgrl