It is an exciting time when people find out a baby is on the way. For most people, having a child is the most joyous event in their lives. While having a baby is a beautiful thing, many individuals feel overwhelmed, even intimidated by the idea of parenthood. Is there enough money to raise a baby? Who will raise them if you die? How will that person care for the baby if you are not there to raise them yourself?
While you should not disregard these critical questions, you should know how to answer them. New and expecting parents can adequately prepare for their child’s future by planning their estate. Estate planning is an integral part of entering parenthood. Planning your estate provides you with a sense of security and peace during a time that might seem nothing but uncertain.
Let us explore this topic in more detail, and learn why planning your estate is so important.
First, what is estate planning? Estate planning provides you with the opportunity to decide what happens to your property, your minor children, and your minor children’s property in case of your incapacitation or death. By making plans, people tend to feel much more at ease and at peace than if everything were up in the air with nowhere to land.
Know Your Estate Transfer Method
Upon death, assets, property, and money transfer to other people in one of four separate ways.
While this is the most popular method for transferring assets, it is not always the most effective. A will only controls property that is subject to probate, which means that the property does not have a designated beneficiary, a transfer on death, or a pay on death designation. It is not titled in a trust either. A will is a legal document that only controls what happens to specific assets.
A trust agreement only controls who receives assets titled in the name of the trust. Parents who set up a trust need to transfer the title to the trust itself. “Funding the trust,” or changing asset ownership, is also critical. A trust can only control the property it owns, and if parents do not take these steps, then a trust agreement cannot control the distribution of wealth.
Also known as “pay-on-death designation,” this asset transfer method allows parents to transfer assets directly to a beneficiary outside of probate without a trust. Investment accounts, such as stocks and bonds, use this transfer method. New and expecting parents need to ensure they establish and update their transfer on death designation(s) accurately, correctly, and timely.
Beneficiary designations transfer investment assets to an individual upon the asset owner’s death. The types of investments or policies transferred include (but are not limited to) IRAs, 401(k)s, life insurance, and annuities. Despite what a will stipulates, a beneficiary designation, transfer-on-death designation, and a pay-on-death designation controls who gets what. Parents need to make sure their beneficiary designation matches their will and precisely says what they want.
Who will raise your child in case of the absence of you and your child’s other parent? By naming a guardian in your estate plan, you establish who will care for your minor child in the event of your death. Planning your estate also allows you to name a property manager or custodian to care for your minor child’s property. In case of your death, a judge decides who raises your child if you do not appoint a guardian. However, if you did name a guardian in your will, a judge will more than likely respect your decision.
The American government levies federal estate tax, but only on very wealthy estates. Most parents will never need to worry about estate taxes. However, eighteen states in the U.S. levy estate and inheritance taxes if they are smaller or have a significant amount of property.
Probate is the court’s process for distributing your property. With the use of their estate plan, parents can avoid subjecting their loved ones to expensive, time-consuming, and unnecessary court proceedings.
In healthcare, a power of attorney names an individual to make your healthcare decisions for you when you are no longer able to. Use a living will specifying the types of health care you want to receive. Your health care directive (the combination of both your living will and your power of attorney for health care), and in some states, your Physician Orders for Life-Sustaining Treatment (POLST) form can specify your health care wishes in the event of an emergency.
Your estate plan can stipulate your final arrangement wishes as well. For example, it can specify if you want your body buried, cremated, or donated. It can also specify the kind of memorial you would like to have.
Having a child is a joyous occurrence and one that excites most people. While it is a happy time, important questions will arise that new and expecting parents need to consider. Is there enough money to raise a baby? Who will raise them if you die? How will that person care for the baby if you are not there to raise them yourself? Estate planning answers these vital questions. By planning your estate, you ensure that your loved ones will have the security and the means they need to live peacefully and comfortably upon your death. What kind of legacy do you want to leave for your child? Contact us today and let us help you leave a legacy your child will never forget.