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Littman Krooks Special Needs

Estate Planning for Young Families

Published December 20, 2018

By Ryan J. Byrnes, Esq., Littman Krooks LLP

In the movie “It’s a Wonderful Life,” when George Bailey stands on that bridge outside Bedford Falls, contemplating whether life for his young wife and five children really would be better without him, George has just one tangible asset: the $15,000 life insurance policy tucked in his suit pocket.

Small-town banker George Bailey, a paragon of self-sacrifice and family responsibility, knew that it was important to do what he could for his family at a time when he had no significant assets to leave behind should he suddenly pass away. He didn’t have much money, but he found room in the family budget for a life insurance policy.

That’s how it is with all young families. They may not have great wealth to distribute, but they have great responsibilities toward their children and this alone should provide a strong impetus for estate planning.

Heads of households with young children should be asking the following questions:

  • Who will take care of the children if one or both parents dies?
  • What sources of income will the family draw on?
  • How will the children’s education be financed?
  • Who will manage the family’s financial affairs?
  • Who will make important medical decisions in the event that one or both parents suffers a serious injury?

Fortunately, all of these questions can be resolved with planning and execution of basic estate planning strategies. The best time to act is now, when everyone in the family is in good health and important decisions can be made deliberately, with due regard to good financial and legal advice.

Trusts Provide Control, Peace of Mind

A trust is an effective estate planning tool to provide for the children’s care and education following the death of a parent. With a trust, parents can designate a relative or family friend as guardian to care for their children and create a source of income for the trustee/guardian to draw upon. The choice of a guardian for the family’s young children is a critical estate planning decision. Not only must the family find a trusted individual capable and willing to handle the responsibility, they must take care to provide that person with adequate financial means to carry out the guardian role.

An estate planning attorney can also draft health care directives and powers of attorney to empower a trusted representative to act if the parents are incapacitated due to serious injury or other catastrophe.

Trusts are particularly effective estate planning tools because they vest the trustee — not a judicial officer — with control over inheritances directed to minor children. With a trust, parents can decide in advance who will manage the trust’s funds and when, and for what purpose, the minor children will receive distributions from trust assets.

Life Insurance Is Not a Bad Start

Just as George Bailey did, young parents should strongly consider life insurance as an income substitute in the event one or both parents dies. Life insurance proceeds, while not always a permanent solution to the loss of a parent’s income, can maintain the family’s current lifestyle, be invested to pay for the children’s education, and to pay the mortgage on the family home — as well as other expenses. Life insurance for younger, healthy individuals is often very affordable.

For parents with young children, the designation of a beneficiary of the life insurance policy is an important decision.

Parents looking to replace one parent’s income should weigh carefully the contributions of that parent, even if those contributions are non-financial in nature. That value that a “stay at home” parent provides — e.g., childcare and housework — can be expensive to replace. Also, the loss of one parent frequently means that the surviving parent will be required to work fewer hours or find a job that is closer to home.

Budgeting and Saving Also Count

Parents of young families — if they haven’t done so already — should sit down and prepare a budget capturing the family’s ongoing expenses: housing, vehicles, medical expenses, food and clothing, and anything else that falls in the category of regular, continuing living expenses.

Closeup of a young girl getting piggyback ride with father

With these outlays in mind, young families should create a plan to immediately start saving for the family’s future high-dollar needs. Today there are numerous financial products to achieve family-related savings goals. Funds dedicated to future needs can be placed in children’s accounts under the Uniform Gifts to Minors Act, or invested in a tax-advantaged 529 Plan for the children’s education, or used to fund a trust, or invested in retirement savings plans. The main point is this: Saving money saving should be part of any estate plan, and the saving should begin as soon as possible.

Young parents should also consider funding a “family emergency fund” with liquid assets, to be drawn on in the event of an unforeseen event such as job loss or serious illness.

Finally, it’s important to recognize that estate planning objectives will change over time. Estate plans should be reviewed regularly, especially after major life events such as divorce, death of a parent, changes in the children’s circumstances such as college graduation or marriage, and significant income changes due to retirement or job loss.

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