Congratulations on your new baby! Becoming a parent is an incredible journey filled with joy, love, and a whole lot of sleepless nights.
It is also a time when you start thinking about the future in an entirely new way. You want to make sure your child will always be protected, no matter what happens.
Legal documents may be the last thing you want to think about after bringing home a new baby. However, creating a will and other estate planning documents is one of the most loving things you can do for your child.
Here are five important things every new parent should know about estate planning.
1. Naming a Guardian May Be the Most Important Part of Your Will
If you pass away while your child is still a minor, one of the first questions will be who should raise your child in your place.
No parent wants to imagine that possibility. Nevertheless, naming a guardian may be one of the most important reasons to begin estate planning after having a baby.
Your will allows you to nominate a trusted person to serve as your child’s guardian. The Maryland Register of Wills identifies nominating a guardian for minor children as one of the important reasons to create a will.
What Happens If You Do Not Name a Guardian?
If you do not leave written instructions, a court will have to make this deeply personal decision without your guidance.
A judge will consider the child’s best interests and the available caregivers. However, the judge may know very little about your family relationships, parenting preferences, values, or reasons for preferring one person over another.
Naming a guardian in your will gives the court clear evidence of your wishes. Although the court retains final authority, it will generally give serious consideration to the person you nominated.
Consider Naming a Backup Guardian
Your first-choice guardian may be unable or unwilling to serve when the time comes. The person could experience health problems, move away, or face other circumstances that make the appointment impractical.
For that reason, your will should generally name at least one backup guardian.
Before making your choices, speak with the people you are considering. Make sure they are willing to serve and understand the responsibility they may be asked to accept.
2. Name a Personal Representative You Trust
A personal representative, traditionally called an executor, is the person appointed to manage your probate estate after your death.
According to the Maryland Register of Wills, the personal representative administers the estate under the terms of the will or the laws that apply when there is no will.
The personal representative’s responsibilities may include:
- Locating and protecting estate property
- Filing the will with the Register of Wills
- Identifying and notifying interested parties
- Paying valid bills, taxes, and expenses
- Completing required court filings
- Distributing property according to the will
This person should be trustworthy, responsible, and organized. You may choose a family member, a friend, or a qualified professional.
What Happens If You Do Not Choose Someone?
If you do not have a will, state law will determine who has priority to serve as the personal representative of your estate.
That person may not be the individual you would have selected. Creating a will allows you to state your preference and name a backup in case your first choice cannot serve.
The personal representative does not have to be the same person you nominate as your child’s guardian. In some families, one person is best suited to raise the child while another is better equipped to manage money and estate administration.
3. Review the Beneficiaries on Your Financial Accounts
Many new parents assume that their will controls everything they own. That is not always the case.
Life insurance policies, retirement plans, annuities, payable-on-death accounts, and certain other financial accounts allow you to name a beneficiary. When you die, those assets generally pass directly to the beneficiary listed on the account, regardless of what your will says.
For example, suppose your parents are still named as the beneficiaries of a life insurance policy, but your will leaves your estate to your child. The insurance proceeds will generally pass to your parents, not to your child, because the policy’s beneficiary designation controls the payment.
Make Sure Your Beneficiary Designations Match Your Estate Plan
After having a child, review the beneficiary designations on your:
- Life insurance policies
- Retirement accounts
- Investment accounts
- Annuities
- Payable-on-death bank accounts
- Employer-provided benefits
Work with your estate planning attorney and financial advisor to identify inconsistencies between your beneficiary designations and the rest of your estate plan.
Beneficiary designations should also name appropriate contingent beneficiaries. A contingent beneficiary receives the asset if the primary beneficiary dies before you or cannot receive the proceeds.
Be Careful About Naming a Minor Directly
Naming your child as a beneficiary may sound like the simplest option, but a minor usually cannot control inherited money directly.
If you name a minor child without creating an appropriate trust or custodial arrangement, a court may need to appoint someone to manage the property. The child may then receive control at the age required by the applicable law or account arrangement even if the child is not financially prepared.
Your attorney can help you determine whether the beneficiary should be a properly drafted trust rather than your child individually.
4. A Will May Not Accomplish Every Estate Planning Goal
A will can be a good foundation for an estate plan, but it has limitations.
If property is left outright to a minor child, someone must manage it until the child can legally receive it. Many young adults are not prepared to handle even a modest inheritance immediately.
Parents may also want to protect an inheritance from poor financial decisions or make funds available gradually for education, healthcare, housing, and other needs.
A trust can provide more detailed instructions about how the inheritance should be managed.
Using a Testamentary Trust
A testamentary trust is written into your will and created after your death.
It allows you to choose:
- Who will manage your child’s inheritance
- What the money may be used for
- When distributions may be made
- At what ages your child may receive control of the remaining property
- Who should serve if the original trustee cannot act
Because a testamentary trust is created through a will, the will must generally be submitted to probate before the trust can be established.
In Maryland, papers filed in probate estates are generally public records. This means that the will and its trust provisions may become available to the public.
Using a Revocable Living Trust
A revocable living trust goes into effect when you create it. It can provide instructions for managing trust property during your lifetime, if you become incapacitated, and after your death.
Like a testamentary trust, a revocable living trust allows you to choose who will manage your child’s inheritance and establish rules for when and how the child will receive it.
A properly funded revocable living trust may also allow trust-owned assets to pass outside probate. This can provide more privacy and may make the administration of those assets faster or easier for your family.
However, simply signing the trust is not enough. Assets generally must be transferred to the trust or coordinated with it through appropriate beneficiary designations.
The Consumer Financial Protection Bureau’s explanation of revocable living trusts provides additional information about the people and roles involved.
Which Option Is Right for Your Family?
A will with a testamentary trust may be appropriate for some families. Others may benefit from a revocable living trust.
The right choice depends on your property, privacy concerns, family circumstances, financial goals, and how much control you want over your child’s inheritance.
An experienced estate planning attorney can help you compare the options.
5. Without Clear Instructions, State Law Steps In
Think of your will, trust, and other estate planning documents as a legally recognized instruction manual.
These documents explain what you want to happen if you die or become unable to manage your own affairs. They can identify who should care for your child, who should manage your property, and how your child’s inheritance should be protected.
Without clear instructions, state law and the courts will determine what happens.
Your Estate Plan Should Address Incapacity Too
Estate planning is not limited to deciding what happens after death.
New parents should also consider what would happen if an illness or injury left them temporarily or permanently unable to make decisions.
A complete plan may include:
- A last will and testament
- A revocable living trust, when appropriate
- A financial power of attorney
- An advance healthcare directive
- Authorization for trusted caregivers
- Updated beneficiary designations
- Instructions concerning digital accounts and important records
These documents allow trusted people to act for you and help protect your child if you are unavailable.
When Should New Parents Create or Update an Estate Plan?
Ideally, parents should create or update their estate plan as soon as possible after the birth or adoption of a child.
You should also review the plan after:
- The birth or adoption of another child
- A move to another state
- Marriage, divorce, or remarriage
- A substantial change in income or property
- The purchase of a home
- A change in your preferred guardian or personal representative
- A beneficiary’s death or disability
- A change in your life insurance or retirement benefits
Estate planning is not a one-time task. Your plan should continue to reflect your family, property, and goals as your child grows.
Protect Your Child’s Future
Protecting your child’s long-term future is one of the most loving things you can do.
A will is an important starting point, but every family’s needs are different. Your complete estate plan may also require a trust, powers of attorney, healthcare documents, and carefully coordinated beneficiary designations.
Putting those instructions in place gives your family a clear plan to follow and gives you confidence that your child will be cared for.
We Can Help New Parents Create an Estate Plan
At McDonald Law Firm, we help new parents understand their options and create estate plans that fit their families, goals, and circumstances.
Attorney André O. McDonald assists clients in Howard County, Montgomery County, and the District of Columbia with estate planning, special needs planning, Medicaid planning, and related matters.
To schedule a consultation about protecting your new baby, call:
- Howard County: 443-741-1088
- Montgomery County: 301-941-7809
- District of Columbia: 202-640-2133
You may also contact McDonald Law Firm online.
DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE, OR TAX ADVICE.
