As any parent of young children will know, finding a spare minute can be a hard task and taking time to draw up an estate plan for the future is something that often falls to the bottom of the priority list. However, it is important for all families to have a basic estate plan in place to provide financial security for their children in unforeseen circumstances.
Below are some key areas to consider when creating such a plan:
- Appoint guardians for your children
This is the most important reason for parents with young children drawing up an estate plan. Choosing who will raise your children if both parents were to pass away is such an important and personal decision – and one which should be made by the parents, rather than decided by the courts. Once decided, don’t forget to discuss your decision and ask the potential guardian if they would be willing.
You should also consider who is best placed to manage your children’s inheritance until they come of age. This is often the same person as the guardian but it can be somebody else of your choosing. As part of this, you could establish a trust for your children which is an effective way of managing their money and can also reduce costs.
- Draw up a will and living will
The key function of a will is to set out how your assets should be distributed when you die. It is therefore one of the most important components of the estate planning process as it outlines your wishes and how your family will be taken care of.
A living will is also an important document to have, as it gives details of your preferences for end of life medical care in the event that you become incapacitated, rather than putting such responsibility upon your loved ones at a difficult time.
- Decide upon an executor or trustee
When drawing up your will, you should detail the person who will be responsible for managing your estate when you pass away. The executor or trustee will carry out duties such as finalizing your financial affairs, distributing your assets as per your will, selling any properties etc.
- Name your beneficiaries
Although your will is, in many ways, the most important document, it is important that you also clearly specify who you want your assets to be left to in your life insurance and retirement accounts, as these documents take precedence over what is detailed in your will. Note that, if you want to leave assets to minor children, you should name the trust rather than the child directly.
- Review your life insurance needs
Ensuring that your family has the means to have a secure financial future after your death is a crucial part of estate planning. Put simply, you need life insurance if you have children who depend on you financially. Many parents find that term life insurance is surprisingly inexpensive if taken out early in life and can cover all sorts of costs, including funeral expenses, paying off debts and general living expenses for your family.
Finally, it is important to remember to review your estate plan regularly so that it reflects the changing nature of your family and personal circumstances over time. Many financial advisors suggest that at least once a year should be sufficient though, if your family has a major change such as divorce for example, you should review and amend your plans immediately.