The impact of having a baby is an incredible thing. This small person depends on you for everything. You know you will need to be there for your child. But you should be aware that your child will still depend on you, even if something happens and you are no longer there.
As a new parent facing many demands on your time, it is easy to overlook your responsibility to do estate planning to provide for the new addition to your family. You want to look after your loved ones, even if you are unable to do so in person. There are several issues your estate planning team at Brady Cobin Law Group can help with along with offering our congratulations on the birth of your new baby.
Add Your New Child to Your Will
You should have a will or living trust in place before your baby is born. A will provides instructions for distribution of your assets upon your death. A living trust names a trustee to succeed you and your spouse as the person in control of your estate, all of which is legally owned by the trust. If there is no will or trustee in place when a parent dies, the estate is divided according to North Carolina probate law, which may not favor your child or children.
If you already have a will that directs that your children benefit from the dispersal of your estate, you need to make sure that your new child is listed among your heirs. If you do not have a will yet, the birth of your child is an appropriate time to create one.
Another approach is to set up a trust for your child, or trusts for each of your children. Your will would assign assets to the trust and your designated trustee would distribute the assets to or on behalf of your child, as the rules of the trust specify. A trust would typically invest its assets, allot portions for schooling and other necessities, and allow the beneficiary access to funds once he or she reached a certain age or achieved other goals, such as completing a college education.
Name a Guardian and a Trustee for a New Baby
Welcoming a new baby to the family is a joyous time. Unfortunately, it is a happy time that requires us to consider situations that may arise. If you were to die before your child is grown, you would want to know that he or she will be raised by someone who loves and understands what you would want for your child. You also want to feel comfortable that designated person will carry out the role of ensuring your child’s financial needs are met. Legally there are two roles that need to be filled: a guardian and a trustee.
A guardian raises an orphaned child. You should talk to the person you intend to name as your child’s guardian, and make sure the person is willing to assume the responsibility, should the need arise. The attorneys at Brady Cobin Law Group, PLLC can help you take the legal steps to name a guardian and put plans in place for the care and upbringing of your child. If no guardian is named in a will, a court may appoint a guardian.
If you already have children with potential guardians named, you still need to name a guardian for your new child.
While a guardian raises a child, a trustee handles an orphaned child’s finances, including assets you leave behind. A trustee will ensure any of your estates’ debts and taxes are paid, and look after leftover funds to ensure they are distributed to your child as outlined in your will or the trust you established.
Your child’s trustee may also be his or her guardian, but you also may name a different person or a co-trustee if you have substantial holdings.
Power of Attorney for a Minor Child
Documents separate from your will are necessary in case you are incapacitated but alive and decisions regarding your child’s welfare must be made.
A durable power of attorney names someone to act as your agent if you become incapacitated. This person can pay bills and transfer money among your accounts, and deal with banks and other agencies on your behalf. A medical power of attorney specifically relates to health care decisions.
A power of attorney for a minor child allows you to name another adult to make decisions about the child’s needs but does not delegate parental or custodial rights. You can grant specific authority for the agent or attorney-in-fact named in a power of attorney for a child, such as obtaining medical treatment or registering for school. Or you might delegate general decision-making authority to the agent named.
Power of attorney for a minor child is often a precursor to guardianship.
Add a Child to Life Insurance, Other Accounts
You may need to revise all of your financial accounts upon the birth of a child. All assets, from life insurance policies to 401(k) plans, name primary and secondary beneficiaries. While your spouse is typically your primary beneficiary, you would likely want your child to be named as the secondary beneficiary in case your spouse also is deceased.
However, an underage child would not be legally able to control property, so the probate court would name someone to oversee your assets until the child reaches the age of 18. A custodian must file with the court annually and act under the court’s supervision. This results in fees and expenses that come out of the child’s inheritance.
This can be avoided by establishing a trust to receive assets from your financial accounts upon your death, and in turn, have a trustee you chose administer them on behalf of your child.
The birth of a child also is a fitting occasion to revisit the amount of life insurance coverage you have, and how much of your income you are directing into a 401(k) and/or other savings accounts. Having some cash on hand is important as well. We recommend having a rainy-day fund with an amount equal to approximately six to 12 months of anticipated spending in a savings or money market account that you can access in an emergency.
Contact Us to Review or Establish Estate Planning Documents
Estate planning should be an ongoing process that you revisit as your life unfolds and your circumstances change. When a new child joins your family, he or she needs financial protection along with everything else you will provide.
The experienced Raleigh estate planning attorneys at Brady Cobin Law Group are ready to talk to you about how to protect your children and the legacy you want to leave them one day. Call or contact our law firm online today to set up a consultation.