Having a child can be exciting (and stressful). Probably the last thing you might think to do when having a child is to update an estate plan, but it’s absolutely necessary. Here are 6 things to consider when you have a child.
- Update your Will. If your Will does not already provide for it, you need to update your Will to include what property you would want to pass to your child upon your death. For instance, if you previously had no children, you may have provided that everything goes to your spouse or parents upon your death. After having a child, that wish may, and most likely will, change.
- Include a Trust in your Will. This is important to plan for the case where you die while your child is still a minor (and is almost as equally important to plan for when you think your child will become a “mature” adult). For a minor child, a guardian will be appointed to take care of and take custody of the child. Without a trust for the benefit of the child, any property passing to the child upon your death will also fall into the hands and be the responsibility of the guardian. Though the guardian is technically supposed to take control of any assets passing to your child and apply them for your child’s benefit, without a trust, the guardian is not subject to any meaningful standard in doing so. With a trust, you, rather than the guardian, control how, for example, money is spent for the benefit of or given to your child and when. You do this through appointing a trustee to administer the trust at your death. You also control who will be a successor or alternate trustee. Note that if there is no trust in place, all funds passing to a child would pass outright to your child when the child is age 18.
- Name a Guardian in your Will. As provided above, if your child is a minor, he or she will be given a guardian at your death. Rather than leave it to the courts to decide who this will be (if it is not a surviving spouse), it is better to name the guardian you want in your Will. The courts will generally respect such designation when probating your Will and overseeing guardianship proceedings.
- Execute a Limited Power of Attorney for Medical Authorization. There will undoubtedly be times where you need to leave your child in the care of others, such as leaving the child with a babysitter, or leaving the child with relatives while on vacation. If your child gets hurt and needs medical attention, you may not be available to authorize medical treatment. Be sure to give the person who is to care for your child in your absence a limited power to authorize medical treatment.
- Re-evaluate tax withholdings. When you have a child and can claim the child as your dependent for federal income tax purposes, it usually results in a drastic reduction in the amount of income tax you owe the government. If your employer withholds from your wages for income tax purposes, be sure to re-evaluate how much is being withheld. After having a child, your employer may be withholding too much.
- Life Insurance and Retirement Accounts. Whether or not you wish to change who is entitled to the proceeds of any life insurance policies you own at your death or the balance of any of your retirement accounts upon your death, it is always a good idea to review your beneficiary designations for such. If your child is a minor, it may be advisable to designate the child’s trust (see “2” above) as the beneficiary. In almost all cases, it would not be advisable to designate the minor child as the outright beneficiary. Note that having a child may also be an appropriate time to increase your insurance policies. Also be wary of naming a person who has agreed to use the life insurance to support your child. Even the most trustworthy person may be unable to fully comply with your wishes. Once the proceeds are paid to an individual, it is his or her property and could become subject to that person’s creditor claims, divorce proceedings, and distributeable to such person’s heirs upon his or her death.
These are just a few estate planning considerations when having a child, and every person has different planning needs. A qualified estate planning attorney can assist and guide you with respect to your particular needs.