It is tragic when a young parent passes away or suffers a sudden incapacity. However, these cases do occur and it is prudent to plan ahead for the unexpected.
Basic estate planning documents are practical for parents of any age. While you are just starting to develop a savings, it may not seem necessary to have an estate plan. However, there are reasons beyond the management of money that one should have an estate plan.
First, a Last Will & Testament sets forth who will be the guardians for your children if you have passed. A guardian will be the person who will care for your children. They will serve as the caregivers, making day to day decision for your children as a parent would. Think carefully who will be the best choice for this role. It could be your parents, siblings or other individuals who would agree to step in and care for your children.
The second practical purpose of an estate plan is asset management for your children. If you and your spouse have passed, someone will need to manage the finances for the children. Trusts for minors are usually set forth in your Will. A trustee is named to manage their inheritance. Money can be used during their lifetime for health, education and support. Once the child reaches a certain age, the trust can come to an end. If you do not use a trust to hold the money until they are mature, they will likely receive the inheritance at age 18.
Despite not having a large savings, younger families can acquire life insurance. The life insurance serves to pay off debt such as a mortgage and provide a resource for raising minor children. Estate plans involving minor’s trusts need to coordinate other investments with the plan to leave money in trust for the minor. For example, the life insurance policy needs to designate the minor’s trust as the beneficiary of the policy proceeds rather than leaving them outright to the minor.
In addition to the Last Will & Testament, a Standby Guardianship form should be signed. This document allows a trusted family member to look after your children while you are incapacitated. In these cases, there is an accident that renders you and your spouse unable to care for your children for some time. A Standby Guardian is named to be the guardian for your children until you are capable of returning to your role as parents.
Lastly, don’t forget Powers of Attorney. If an accident occurs that renders you incapable of making decisions for yourself, your spouse needs the legal authority to make financial decisions for you as well as render healthcare directions. Both a durable Financial Power of Attorney and a Healthcare Power of Attorney are valuable for parents of any age.