Introduction
Becoming a new parent is an exciting time. It’s incredible how your world changes almost overnight, though sometimes those changes can feel overwhelming. For many people, this is the first time that the importance of estate planning hits home. If you’re in that group, don’t worry—crafting an estate plan that ensures your child is properly cared for isn’t as hard as you think. Here are ten simple steps you can take to put a comprehensive plan in place:
- Draft a durable power of attorney
- Appoint a healthcare proxy
- Create an advance healthcare directive
- Plan for your funeral and burial
- Name a guardian for your child
- Leave a letter of intent with the intended guardian
- Nominate an executor
- Designate beneficiaries for your assets
- Establish a trust
- Consider life insurance
Draft a Durable Power of Attorney
If you become incapacitated—perhaps due to a serious illness or accident—you’ll need someone to manage your finances and ensure your child is provided for. If you’re married, your spouse already has the legal authority to that. If you’re not married, or if your spouse also becomes incapacitated, you’ll need to appoint an authorized agent to handle your affairs. Draft a durable power of attorney that names the intended party as your attorney-in-fact. With this document in hand, your agent will be able to work with your financial institutions to pay your bills, manage your investments, and spend money to care for you and your child.
Appoint a Healthcare Proxy
On a similar note, you’ll also need someone to handle your medical needs if you become incapacitated. A healthcare proxy will have the authority to access your medical records, speak with your doctors, and make important decisions regarding your treatment if you’re unable to communicate. Again, your spouse inherently has this authority, but other family members and friends do not. Most people designate the same person to serve as agent and healthcare proxy with a single power of attorney, but you can draft separate documents if you’d like to differentiate between the two.
Create an Advance Healthcare Directive
An advance healthcare directive (sometimes referred to as a living will) clearly expresses your preferences for medical treatment. If you’re incapacitated and unable to communicate with your doctors, the hospital and your healthcare proxy will be able to consult this document to determine what you would or would not approve of. You can broadly authorize any actions to save and sustain your life, or you can specify certain treatments and procedures. Some commonly addressed topics include palliative care, resuscitation, artificial life support, cancer treatment, and surgery.
Plan for Your Funeral and Burial
If your financial situation permits, it’s best to purchase pre-need services from a cemetery or crematorium, such as a burial plot, headstone, coffin, etc. If that’s not possible, or if you’d simply prefer not to dwell on such a morbid subject, that’s okay—you can leave a letter of instruction with a trusted family member so that your family knows your funeral and burial preferences when you pass away. A letter of intent is not a binding legal document, but it’s helpful for your family when the time comes. In the letter, be sure to note which assets should be used to pay for your services (e.g. life insurance policy, savings account, etc.).
Name a Guardian for Your Child
You can name a guardian for your child in your last will and testament. The nominated individual has the right to decline, so be sure to discuss your intentions with the guardian ahead of time to ensure they’re willing to care for your child. To prepare for unexpected contingencies, it’s a good idea to name a backup guardian, too. This individual can take responsibility if your first choice is unable to care for your child.
Leave a Letter of Intent with the Intended Guardian
Again, a letter of intent is not a binding legal document, but they’re immensely helpful to your family and friends, and most courts will respect your intentions that are expressed in a letter of intent. In this case, you should leave a letter of intent with your child’s guardian that gives them permission to take in your child until the court formally appoints them as guardian. It can take weeks before the court appoints the guardian, and you don’t want your children stuck in the care of the state when there are family members and friends willing to care for them in the interim.
Nominate an Executor
An executor or personal representative is the individual who will handle your estate when you pass away. They will be tasked with gathering your assets, settling your liabilities, transferring your assets, and ultimately closing your estate. You can name an executor in your will, and it’s a good idea to list a backup executor, too. If you fail to do this, the court will appoint a third-party special administrator to serve as your personal representative.
Designate Beneficiaries for Your Assets
When you’re considering who will receive your assets when you die, it’s important to note that some assets can automatically transfer to your beneficiaries when you die, while others will need to pass through probate court. Assets that don’t require probate have a contractual beneficiary listed on the account, so the financial institution can release the assets to the beneficiary as soon as they receive a copy of your death certificate. For these assets, all you need to do is ensure the right beneficiary is listed on the account. Such assets include:
- Bank and brokerage accounts with a payable-on-death or transfer-on-death beneficiary
- Real property owned in joint tenancy or as tenants in the entirety
- Retirement accounts
- Life insurance policies
- Trusts
On the other hand, there are a handful of assets that will need probate court to transfer ownership to a beneficiary. These assets need to be addressed in your will. If you fail to cover any probate-assets in your will, they’ll be subject to the state’s intestacy laws, and will pass to your lawful heirs accordingly. Considering this, it’s usually a good idea to include a “catch-all” clause in your will that broadly addresses any assets that may be unintentionally left out. Assets that are subject to probate include:
- Individual bank and brokerage accounts
- Property owned individually or as tenants in common
- Personal property, such as vehicles, jewelry, art, collectibles, etc.
Establish a Trust
Minors can’t own or receive property, so you’ll need to be careful with how you disposition your assets that are intended for your child. Depending on your situation, you may want to consider establishing a trust for your child’s benefit. With a trust, you can appoint a trustee to prudently manage the assets and use them to provide for your child (the beneficiary). When your child turns 18, the trustee can dissolve the trust and gift your child all of the remaining assets.
Consider Life Insurance
If you’re concerned that you don’t have enough assets to sufficiently provide for your child’s needs in your absence, you may want to consider purchasing a life insurance policy to bridge the gap. If you do, pay careful attention to who you list as the policy’s beneficiary. Again, minors can’t own property, so you can’t directly transfer the life insurance death benefit to them when you die. Instead, you’ll want to direct the proceeds to a surviving spouse, the child’s guardian, or a trust.
Call our Estate team at (480)467-4325 to discuss your case today.