As a parent, your top priority is likely the well-being and future of your children. While we all hope to be around for our kids for as long as possible, the reality is that life is unpredictable. That’s why it’s crucial to plan ahead and ensure that your children are taken care of, even in the event of your untimely passing. This is where estate planning comes in – it’s the process of arranging your affairs so that your assets are distributed according to your wishes and your children’s future is secured.
But what exactly is estate planning, and why is it so important for parents? In this article, we’ll dive into the nitty-gritty of estate planning for parents, giving you the information you need to make informed decisions and protect your children’s future.
What is Estate Planning?
Estate planning is the process of organizing and preparing for the distribution of your assets after you pass away. It involves taking a comprehensive look at your financial situation, creating a will, and making decisions about who will take care of your children if you’re no longer around. Estate planning is not just for the wealthy – it’s for anyone who wants to ensure that their assets are distributed according to their wishes and that their children are taken care of.
Why is Estate Planning Important for Parents?
Estate planning is essential for parents because it gives you peace of mind knowing your kids will be taken care of, even if you’re not there. By making a plan beforehand, you can make sure your assets go where you want them to, and your children will have the financial support they need. Without a plan, the state will decide how your assets are divided and a court will choose a guardian for your kids. This can result in a lengthy and costly legal process and may not end up the way you want it to. By planning ahead, you can make sure your kids are taken care of by the people you trust and that your assets are distributed according to your wishes.
What are the Key Elements of Estate Planning for Parents?
Estate planning for parents has three main parts: a will, naming a guardian, and setting up a trust. We’ll go into more detail on each of these in future parts of this series, but for now, let’s give a quick overview.
A Will: This is a legal document that tells everyone what you want to happen to your stuff after you’re gone. It also lets you choose who will take care of your kids if you can’t.
Naming a Guardian: This is a big deal in estate planning because this person will be in charge of your kids if you’re not around. It’s important to pick someone you trust and who has the same values as you for parenting.
Setting up a Trust: This is a legal way to set aside money and assets for your kids’ future. You can use it for things like education and healthcare, and it can also protect your assets from creditors and taxes.
Estate planning is a critical part of being a parent. By taking the time to plan ahead, you can ensure that your children are taken care of, even if you’re not there to do it yourself.
Creating a Will
Creating a will is like making a map for your assets after you’re gone. It’s a crucial step in estate planning, especially if you have kids. Without a will, the state will decide what happens to your stuff and who takes care of your kids. When making a will, you’ve got to think about a few important things. First, you’ll need to list all your assets and say who gets what. This includes things like your bank accounts, investments, house, personal belongings, and anything else you’ve got. Next, you’ll choose a personal representative, also known as an executor, who will follow the instructions in your will, like dividing up your assets and paying off any debts or taxes. Finally, you’ll pick a guardian for your kids, someone you trust and who shares your parenting values. They’ll take care of your kids if you’re not around. It’s smart to update your will if anything big changes in your life, like having a baby, getting married, or getting divorced. You might also want to think about using a pour-over will, which works with a trust.
Naming a Guardian
If you have children, you need to pick a guardian to look after them if something happens to you. If you don’t name a guardian, the court will decide who takes care of your kids and it might not be the person you would’ve picked. By naming a guardian in your will or other estate planning documents, you can make sure your kids will be taken care of by someone you trust, and it can also help make things a little easier for your kids during a tough time.
Setting up a Trust
A trust is like a special savings account where you give your assets to a trusted person, called a trustee, to manage for the benefit of one or more people you choose, called the beneficiaries. Trusts can be helpful for people who want to plan for the future because they offer valuable and powerful advantages, like avoiding probate and making sure your beneficiaries don’t have to worry about managing their own money. There are different types of trusts, like ones that you can change and ones that you can’t. Let’s take a closer look at a couple of them.
Revocable Living Trusts
This is a type of trust where you can transfer ownership of your assets to the trust, but still keep control over those assets while you’re alive. This type of trust is often used to avoid probate because the assets in the trust go straight to the beneficiaries without needing a court to oversee things.
Once this type of trust is set up, it can’t be changed or cancelled. It’s often used for estate and tax planning, to help lower estate taxes, and protect your assets from creditors. It can also be used to take care of someone with special needs, like a child or an elderly parent. But, since you’re giving up control over the assets in an irrevocable trust, it’s important to think things through and make sure the trust aligns with your goals. It’s also a good idea to work with an estate planning lawyer to make sure everything is set up the way you want it to be.
Designating a Power of Attorney
A power of attorney is a legal document that allows you to appoint someone to handle your financial and medical affairs if you’re unable to do so yourself. This can be especially important if you become incapacitated and are unable to make decisions for yourself.
When choosing a power of attorney, it’s important to choose someone you trust and who can handle your financial and legal affairs.
Setting up a Living Will
A living will is like a set of instructions for what you want to happen if you’re ever too sick or hurt to make decisions for yourself. If that happens, you want to make sure your healthcare providers know what you want, and a living will is the way to do that. In your living will, you can say if you want to be kept alive with life support, if you want treatment just to ease your pain and suffering, and if you want to donate your organs. Even if you have someone who can make decisions for you (like a power of attorney), it’s still important to have a living will.
Creating a Medical power of attorney
A medical power of attorney is a legal document that allows you to appoint someone to make medical decisions on your behalf if you’re unable to do so yourself. This can be especially important if you’re facing a serious illness or injury and are unable to communicate your wishes to your healthcare providers.
When choosing a medical power of attorney, it’s important to choose someone you trust and who is familiar with your values and beliefs.
Planning for the Future of Your Business
If you’re a business owner, it’s smart to think about what’ll happen to your business if you can’t run it anymore. That’s where a succession plan comes in – it lays out who’ll take over and how the transition will happen. It’s important to decide if you want to sell the business, pass it down to someone in your family or a worker, or just sell off everything. By planning ahead, you can make sure your business stays successful, even if you’re not there to run it anymore.
Common Estate Planning Mistakes to Avoid
When estate planning, it’s important to avoid making common mistakes that can undermine your plan and leave your children’s future in jeopardy. Here are some of the most common mistakes to avoid:
Not Updating Your Plan: Keeping your estate plan fresh and current is a must, especially if you go through big life changes like having a baby, getting married, or getting divorced. Failing to update your plan can lead to unexpected results and make it harder for your wishes to be carried out.
Not Planning for Incapacity: Many people focus solely on what will happen after they pass away, but it’s also important to plan for the possibility of becoming incapacitated. By designating a power of attorney and creating a medical power of attorney, you can ensure that your wishes will be honored if you’re unable to make decisions for yourself.
Not Naming a Backup Guardian: When it comes to naming a guardian for your kids, it’s smart to have a plan B. That way, if your first pick can’t do it, you’ve got someone else ready to step in. And hey, it never hurts to have a backup for the backup too.
Not Considering Estate Taxes: Estate taxes can have a significant impact on your children’s future, especially if you have a large estate. By setting up a trust or using other estate planning strategies, you can minimize the impact of estate taxes and ensure that your children will have the financial support they need.
Not Working with a Qualified Estate Planning Attorney: When it comes to estate planning, it’s a smart move to get some professional help. A top-notch estate planning attorney can make sure everything is in order and your wishes will be followed. They know all the legal ins and outs and can ensure your plan complies with state and federal laws.
Ensuring Your Plan is in Order
To ensure that your estate plan is in order, it’s important to take the following steps:
Regular Check-Ins: It’s always a good idea to review your estate plan every so often, especially if something major changes in your life. That way, you can make sure everything is still on track and your wishes will still be followed if something happens.
Keep Your Documents Organized: Keep your estate planning documents organized and easily accessible. This will make it easier for your personal representative or other reps to carry out your wishes.
Communicate Your Wishes: It’s important to let your family and loved ones know what you want. That way, they can make sure your wishes are honored and your children will be taken care of, even if you’re not there.
Estate planning is a key part of being a parent. By planning ahead, you can make sure your kids are taken care of, even if you’re not around. Whether you’re creating a will, naming a guardian, setting up a trust, or figuring out the future of your business, it’s important to work with a skilled estate planning attorney to make sure your plan is in order and your wishes will be followed.
Don’t wait until it’s too late – call Hunter Sargent, PLLC and start planning today to protect your children’s future.