The first few months as a new parent are exciting, but they can also be overwhelming.
Estate planning is likely not high on your list of priorities. As inevitable as death is, it’s certainly not pleasant to think about, especially when considering something as important as who will care for your child if you are no longer able to.
However, estate planning is essential to making sure your wishes for both your property and your child are carried out in the event of your death. Here is a list of five tasks all new parents should do ASAP.
1. Write a will
This legal document communicates how you want your property and dependents to be cared for. For a new parent, a critical function of a will is to name a guardian for your child.
If you die without a will, probate court will appoint a guardian based on the best interests of the child. Complications can arise, though.
For instance, in some states, family members will have to petition the court for guardianship. Not only is this an expensive and time-consuming process, it can also result in disagreement and heartache for your family and your child.
Also, be sure to designate an alternate guardian in case the primary guardian is unable to fulfill their duty.
2. Pen a letter of instruction
The letter of instruction can be stored with your will, and its purpose is to be a more specific directive to your child’s guardian. It communicates how you would like your child to be raised.
Perhaps you want your child to attend a particular school or church. You may wish to list certain friends or relatives that the guardian should allow to have a relationship with the child. If your child has special needs, this letter can outline the ways the guardian can provide the best care.
3. Designate powers of attorney
A power of attorney is a document that gives another person the authority to make decisions on your behalf. The power comes into effect when you are incapacitated or otherwise unable to speak for yourself.
A durable power of attorney grants someone the ability to make decisions for you regarding financial and personal matters, while a health care power of attorney names someone who can make health-related decisions on your behalf.
Note: Your powers of attorney for property and health care can be the same person — just be sure to name that person specifically for both roles to avoid any confusion.
4. Get a life insurance policy
This is critical, especially if you are the primary earner in the household. If you die, the policy will replace your income for a certain period of time (called a “death benefit”) so your family can continue to pay the mortgage and bills.
There are two major types of life insurance: term and permanent. Term life insurance covers your family if your death occurs during a specific time frame (common terms are 10, 20, and 30 years). Permanent life insurance policies will pay the death benefit regardless of when you die.
In some cases, your employer may offer life insurance as part of a fringe benefit package. Regardless, it’s a good idea to have a policy of your own. Compare quotes from different companies here.
5. Name beneficiaries
Beneficiaries receive assets from retirement accounts and life insurance. In most cases, the spouse is the default primary beneficiary unless they sign a waiver.
You can also name a contingent beneficiary, such as your child, who will receive your retirement and life insurance assets if you and the primary beneficiary die.
Note that the beneficiaries listed on your retirement accounts and life insurance policies override your will, so update these documents now and review them periodically to make sure they are consistent with your wishes.
The bottom line
If you don’t have these estate documents, a judge will decide how to distribute your estate, usually based on intestate succession. Having an estate plan in place can save your family a lot of time and expense, as well as give you peace of mind that your child will be well cared for physically, financially, and emotionally.