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Financial Planning > Trusts and Estates > Estate Planning

Estate planning for young families

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Many young families put off estate planning. If asked, they may say they are too young, healthy or can’t afford it. Some have trouble just thinking about what could happen if they should die while their minor children and spouse are depending on them.

But even a healthy, young adult can be taken suddenly by an accident or illness, and those with young families need estate planning precisely because others are depending on them. Of course, the typical young adult is not expecting to die while his or her family is young, but clients who plan for the possibility are being prudent and responsible … and showing their familes how much they care.  

A good estate plan for a young family will include naming someone to administer the estate (a trustee or executor), naming a guardian to care for minor children, providing instructions for the distribution of assets, and naming someone to manage the inheritance for the children until they become adults. It will also include a review of insurance needs and planning for disability.

Naming an executor or trustee for the estate. This person will be responsible for handling the client’s final financial affairs — locating and valuing assets, locating and paying bills, distributing assets, hiring an attorney and other advisors — so it should be someone who is trustworthy, willing, able, knows the client and will carry out his or her wishes.  

Naming a guardian for minor children. If something happens to one parent, the other parent will continue to raise the children (unless he or she is physically or emotionally unable to do so). But who will raise them if something happens to both parents? This is often a difficult decision for parents, but it is very important. If parents have not named a guardian, the court will have to appoint someone without knowing their wishes, their children or their family members.  

See also: The Ins and Outs of Trusts

Providing instructions for distribution of assets. Most married couples want their assets to go to the surviving spouse if one of them dies. If both parents die and the children are young, they want their assets to be used to care for their children. Some assets will transfer automatically to the surviving spouse by beneficiary designations and how title is held. However, an estate plan is still needed in the event this spouse becomes disabled or dies, so the assets can be used to provide for the children. 

Naming someone to manage the children’s inheritance. Unless clients include this in their estate planning, the court will appoint someone to oversee their children’s inheritance. This will likely be a friend of the judge and a stranger to the family. It will cost money, which will be paid from the inheritance. Also, the children will receive their inheritance (in equal shares) when they reach legal age, usually age 18. Most parents prefer that their children inherit when they are older and to keep the money in one “pot,” so it can be used to care for the children’s different needs. Establishing a trust for the children’s inheritance lets your client accomplish these goals and select someone he or she knows and trusts to manage it.  

Reviewing insurance needs. Part of the estate planning process is to review the amount of life insurance on both parents. Income earned by one or both parents would need to be replaced. Also, one or more people would probably be needed to take over the responsibilities of a stay-at-home parent. Additional coverage may be needed to provide for the children until they are grown, even more if your client wants to pay for the children’s college.  

Planning for disability. There is the possibility that one or both parents could become disabled due to injury, illness or even a random act of violence. This should be planned for as well. Both parents need medical powers of attorney that give someone else legal authority to make health care decisions for them if they are unable to do so. Your client would probably name his or her spouse to do this, but one or two others should be named in case the spouse is also unable to act. HIPPA authorizations will give doctors permission to discuss the client’s medical situation with others (parents, siblings and close friends). Disability income insurance should also be considered because life insurance does not pay at disability.

Estate planning will require your clients to think about family relationships, and some decisions may be difficult. But as an advisor, you will be able to help them through the process, provide valuable guidance and make sure the plan will do what they want when it is needed. If finances are tight, as they usually are for young families, start with the most essential legal documents and term life insurance, then update and upgrade the plan as the client’s financial situation improves. The most important thing is to not let them put this off. Once a plan is in place, your client will have peace of mind that his or her family will be protected if something should happen.

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For more on estate planning, see:

The 9 lives of second-to-die

6 tax opportunities to take advantage of now

10 estate planning tasks your client should do before 2013


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