Even when you're young, childless and don't have many assets, you need to do some basic estate planning.
However, this takes on a new urgency when you become a parent.
It's essential to state who you'd want to care for your children if you're gone and also to provide for their financial security.
The Motley Fool’s recent article entitled, “3 Estate Planning Documents Every Parent Needs,” details three estate-planning documents parents should consider. Work with an experienced attorney to draft these documents.
- Last will and testament. A will is probably the most basic estate planning document you should have. You can leave instructions about how you want your property distributed when you die. In addition, you can use this document to name a legal guardian to care for your child if you and their other parent die before the child reaches adulthood.
- Revocable living trust. If you die before your child reaches the age of majority (age 18 in most states), a court-appointed guardian will manage any assets the child inherits. When they reach adulthood, they can take control of the property. However, this can be a problem if you have substantial assets. You may not want an 18-year-old coming into a lot of money at once. A revocable living trust is like a will in that you can use it to specify who gets your property. However, it allows you to be more detailed about how your property will be distributed.
- Financial power of attorney. This document allows you to designate an individual to manage your finances if you become incapacitated. Parents must have this document so that someone can access their bank accounts and pay bills, if necessary. Without it, access will typically require a court order. You'll want to make sure money is available for your children’s expenses without delay in an emergency.
- 3.5. Life insurance. Once you become a parent, purchasing life insurance is a must. Term life insurance policies, which only pay a benefit if you die within a specified period, are usually affordable.
No one likes to think about their mortality. However, if you have children, preparing for the worst is something you can't afford to put off.
Reference: The Motley Fool (June 2, 2023) “3 Estate Planning Documents Every Parent Needs”