One of the greatest fears many parents have is leaving their child too soon; even worse, a child left without either parent to care for them. It’s a nightmare no one wants to think about, but a scenario young couples should prepare for.

• If you and your spouse were gone tomorrow, who would you trust to care for your child?
• What about their financial well-being? 

These are tough questions but ones you must ask to develop a sound estate plan. Below we’ve identified a few things to consider regarding estate planning for parents with young children.

Considering the Worst Case Scenario

To emphasize the importance of planning, here’s a possible scenario:

Tom and Stephanie are in their early 40s with two children.

If both Tom and Stephanie pass away suddenly with no estate plan in place, here’s what would happen:

Their estate would go into probate, and the probate court would determine who physically cares for the children. Since Tom and Stephanie did not leave any documentation behind to help make this decision, the court chooses the caregiver based on their closest living relatives, likely their parents or siblings.

In some cases, this arrangement would work out fine. But leaving the future care of your children up to someone else may not always provide the outcome you’d want. Instead, it’s necessary to plan and prepare ahead of time to ensure your children are cared for in a way that you’re comfortable with.

Thinking Through a Family Disaster

Consider creating a family disaster provision. This document should highlight the next steps if something happens to your entire family. You might decide to leave your assets to charity or split them among remaining relatives and loved ones. This provision would tell your remaining heirs how to proceed, no matter what you choose.

The Benefits of Planning Ahead

Planning ahead keeps you in control of what happens to your estate and children after your passing. It allows you to decide, in order, who will be the caretaker for your children. This is especially important for parents who do not want their closest relatives (like parents or siblings) to care for their children.

Outlining these wishes in a will should be a top estate planning priority, as it can be one of the most impactful on your family after your passing. 

In addition, estate planning tools like your will and beneficiary designations can help the courts, your financial team, and your heirs understand your intent. Your intent allows others to see how your estate should be divided amongst remaining loved ones and how your children should be cared for.

Understanding Guardians and Conservatorship

In your will, dictate who should be guardians and conservators for your children. Below we’ve outlined the differences between these two.

Who Is a Guardian?

A guardian is a legal, physical caretaker of a child until that child turns 18. This person is who the child will live with. They will be in charge of raising your child, sending them to school, feeding them, and doing other day-to-day activities.

Of course, whoever you name as guardian should be someone you trust deeply. If possible, you may want to look for a guardian who has a similar value system regarding things like religion, impact goals, charitable giving, etc. 

What Is a Conservatorship?

A conservatorship puts someone else in total control of your or your child’s financial assets. In terms of estate planning, this is the person who will be responsible for the money you leave to your children. A guardian can also act as a conservator, or you can choose to make the conservator a separate person.

Think About a Trust

If you’re concerned about the impact a significant financial windfall may have on your children, consider creating a trust. As an adult, it’s overwhelming to manage a considerable windfall. Imagine having to take on that responsibility at the age of 18.

Instead of putting a lump sum in your children’s hands, creating a trust helps you dictate how much access your child will have to their inheritance. If you don’t want them to receive the lump sum when they turn 18, you can work with a financial professional to put parameters in place. Doing so can help keep your child supported financially for a more extended period.

If you’ve identified a conservator, they may be a part of your child’s trust as well. For example, the conservator may have access to funds to cover large expenses like medical emergencies or education.

Trusts can be complex, and we recommend working with our team at Legacy Wealth Advisors to review your options carefully before establishing one.

Establishing Trust Provisions

If you’re considering creating a trust, think about what provisions to include. For example, you can create a distribution schedule that gives your child access to the funds throughout their lifetime.

Here’s an example of a distribution schedule:

• $25,000 at age 25
• Half of the remaining balance at 30
• The remaining balance at 35

Staggering the windfall can help your child make intelligent financial decisions independently. They can prepare for how they’d like to preserve or spend their inheritance, making it a valuable part of their greater financial life.

Maintaining Life Insurance

As young parents, life insurance provides your surviving loved ones with a financial safety net should you die unexpectedly. Raising a child is expensive, and your designated guardian may not have the means to continue offering the same standard of living, even with access to your remaining assets.

Life insurance is something that every young family should have while hoping they never have to use it. We recommend that most families opt for term life insurance, as it tends to be a more cost-effective solution that can still provide a generous death benefit.

Estate Planning for Young Families

The chances of young parents passing away is slim, but tragedy does strike from time to time. It’s essential to have a plan in place should something happen to you and your partner while your kids are still young.

At Legacy Wealth Advisors, we help families develop a plan, work with other estate planning professionals, and feel confident with their decisions. If this is something you’re looking to accomplish, we’re happy to help.

Schedule time to talk with our team today.

Disclosure:

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.