In my last article, I identified 3 reasons young parents don’t have an emergency plan for their kids.
One reason is because no one’s teaching you. And you don’t realize the consequences of your “do nothing and hope for the best” approach.
So here’s 5 action items that you can knock out to start the year with peace of mind.
1. Write a letter to your kids.
Mark and Priscilla Zuckerberg recently shared the letter they wrote to their newborn daughter Max. The proud young parents talked about what they expect from Max and shared their philanthropic goals.
A letter to your kids is one way to express your values and hopes. Many of my younger clients attach these letters to their wills so they can provide guidance to their kids even if they couldn’t be there to raise them.
Consider writing one letter every 5 years and give them the letters on their 18th birthday.
If writing’s not your cup of tea, make a video.
2. Appoint an emergency guardian to raise your kids.
No one can ever raise your kids better than you. I get that.
But you need to pick someone close to you who is willing and able to take your place if something happens to you and your spouse.
You don’t want your kids to end up in foster care.
So pick one person (and an alternative) and write their names in your will so the court will honor your decision. Then, you can enjoy life knowing that your kids will have someone you trust to raise them if you can’t.
3. Get life insurance (and disability insurance).
Life insurance will help your kids maintain their standard of living and whatever goals you have for them, such as sending them to college or investing in their first business idea. Insurance proceeds are not going to replace you or your spouse, but it helps.
There’s a number of different types of life insurance policies (term life, whole life, variable universal life, etc.). Work with your financial advisor to determine which policy is best for you and your family.
Ask your employer if they offer life insurance as an employee benefit. If they don’t, the good news is you’re young and healthy, so life insurance is affordable. It’s worth it.
And don’t forget about disability insurance. If you become disabled and can no longer work, your spouse and your kids will have to take care of you for the rest of your life. You can make it easier for them with disability insurance that pays 60 to 70 percent of your current income until you’re 65.
4. Give your spouse the power to make decisions for you.
If you’re disabled, your spouse can’t make medical or financial decisions for you unless he or she goes to court and asks a judge to be your “conservator.” This means your spouse will have less time and money to take care of you and your kids.
But your spouse can avoid a conservatorship proceeding if you have a healthcare directive and a durable power of attorney. These two documents allow your spouse to access your bank account or refinance your home to pay your bills, and to make your medical decisions and take care of you -- without going to court.
Also, if you know your spouse and parents don’t see eye to eye, choose a decision maker in advance to avoid a messy conservatorship battle in court.
You can keep your kids away from court proceedings with advance planning.
5. Protect your kids’ inheritance.
So you have a house, a bank account, and a 401k. As a young parent, you should have a basic plan to make sure these things will be left to your kids without the delay and costs of probate court.
Also, avoid inheritance battles between your kids and your relatives by making your wishes known in your trust or will. Probate court is nasty and it depletes your assets.
Lastly, you should protect your kids from themselves by setting up a trust to manage your assets for them until they are mature enough to handle it. You don’t want your kids to inherit your entire estate at the age of 18 and spend it all.
You’re Running Out Of Excuses
Chances are, you haven’t done any of the items on this checklist. If ignorance was your excuse, you’re out of luck.
I hope this checklist will help you start taking control of your kids’ future. Please don’t wait and see what happens.
If you're a young parent and you want to get started with your estate plan, give us a call at (626) 307-2800.