Estate Planning for Young Families
Many young families assume that they have no need for estate planning. They assume that estate planning is only for older or wealthier families and that they shouldn’t worry about it until they have accumulated significant wealth. While it is true that older individuals with considerable wealth have unique estate planning needs that may not apply to young professionals who are just starting their careers, the reality is that nobody needs a good estate plan more than a young family—especially a young family with minor children.
1) Planning for Disability
When considering their planning needs, few young families consider the need to plan for possible disability (learn more from Ortiz Law Firm). If you become so sick or injured that you are unable to make financial or healthcare decisions for yourself, who do you want to step into your place and make those important decisions on your behalf? You can provide instructions for these situations with a good estate plan. Typically, this will include (at least) a Durable Power of Attorney and Health Care Power of Attorney. Sometimes, you may want to provide some specific instructions for the way your chosen representative will manage your affairs. This can usually be accomplished through a living trust agreement.
2) Providing for Care of Minor Children
For those with young children, this is usually the most important aspect of their estate plan. Who is going to take care of your children if both you and your spouse are gone or incapacitated?
Sadly, we’ve found that parents often provide more detailed instructions for the babysitter who will be taking care of the kids for one evening, than for the people who may take care of their children throughout their lives.
Parents who plan ahead can decide who they would like to appoint as guardian for their children. This is often done through a parent’s will. Parents can provide additional instructions in a more complete trust-based estate plan. For example, raising children after the parents have passed is often a team effort. One family member may be particularly well-suited to provide the day to day care for the children, while another family member is better suited to manage any available funds. In these situations, your will might designate the guardian who will provide the daily care your child needs, while the trust designates a trustee and provides instructions on how funds should be used for the children’s needs.
3) Asset Planning
Even if you haven’t accumulated a high net-worth or a portfolio of significant investment assets, there are still ways to plan for the financial well-being of those you leave behind, including certain assets that you may already.
For example, many young professionals have life insurance or disability insurances policies through their employer. Those who are wise get these types of policies, even if their employer does not offer it. For most young families, a spouse is typically named as the primary beneficiary for these types of insurance policies. What would happen if you and your spouse were to pass in a single tragic event? In these difficult situations, you probably want any available insurance money to be allocated to take care of your children. If you leave no plan in place, the courts will inevitably need to get involved to appoint a conservator to help your child(ren) manage the money. The court, then, is forced to make life-altering decisions for your children without your guidance. This process can also be extremely expensive—wasting valuable resources on court costs and attorneys fees.
To minimize these risks, parents can arrange their estate plan in a way that directs any insurance money to a trust for the benefit of their children (and/or other beneficiaries). The trust agreement can provide instruction on how the money should be managed. A trust can also provide some significant creditor protection—helping to ensure that the money is preserved for the benefit and any later beneficiaries.
Additionally, right now we are in the middle of a recovery from a pretty significant recession. Throughout the United States (and especially here in Arizona), young families who purchased a home in the last 6-7 years have likely seen a significant increase in their home’s value. As a result, even some very young families have a built significant wealth in the form of equity in their homes. This can be an important asset in any estate plan.
A well-crafted estate plan will provide the necessary instructions (and appropriate level of flexibility) to allow whomever you designate to properly manage your assets for you and your loved ones. Obviously, every family is unique, and there can be no “one-size-fits-all” plan. Accordingly, however you decide to plan for you and your loved ones, you should consult with a professional that you trust to ensure that your plan gets implemented properly.
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