The first thing many new parents do is go buy life insurance. The next thing they should do is see an estate planning attorney. Why?
Imagine your children are at home with a babysitter. A highway patrolman knocks on the door to let them know there’s been an accident, and you aren’t coming home. Will your children be well provided for?
Too Many Relatives
Tragic situations can be compounded by lack of planning. When it comes to deciding who will raise your children if something happened to both of you, often both sets of grandparents will see themselves as the perfect substitutes, or perhaps the aunts and uncles. Maybe cousins, or close family friends. The point is, often there are several people in your circle of friends and family who think that they are the perfect choice, and there is no way that you would have wanted that other person to raise your children. A custody fight is the last thing your children need. You can avoid one by being clear who your preferred choice and backup choice are though nominating a guardian in your will.
Too Little Too Late
Without additional planning, your children will have limited access to life insurance and the other assets in your estate until they turn age 18. If there is no plan in place, a court may have to supervise the use of the funds, greatly limiting the access and utility of the funds if your guardian has to get court permission for every dollar spent.
Too Much Too Early
Without additional planning, your children will have full access to life insurance and the other assets in your estate as soon as they turn age 18. Depending on the size of your insurance and estate (which may include proceeds from a lawsuit over the cause of your death) that responsibility could be overwhelming. They could go to Cancun, and not work, or they could go to college. Often a large inheritance can change the course of a child’s life and not for the better.
Of course, you aren’t stuck with these choices. By preparing a living trust ahead of time, you can ensure that your children will be properly provided for. You can instruct the trustee (who can be the guardian, or someone else entirely) to use the funds for your child’s education, basic necessities, and health care while your child grows up. Later, the trustee can be instructed on when and under what conditions the inheritance can be released to the child to control. Should your child graduate from college first? Should they be working? How old should they be? Should they get it all at once? A trust isn’t just a one size fits all document – they are carefully crafted plans to meet your goals for your family.
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