Tuesday, March 19, 2013

Estate Planning for the Young Family: 5 Things to Consider After the Birth of Your First Child

By: Attorney (and new Mom) Jessica Czaya

Having your first child is an exciting time in anyone's life, but it brings with it a whole set of new challenges. In the midst of the post-birth chaos and sleep deprivation, it can be easy to put off reviewing and making changes to your estate plan. However, it is important that you take the time for your family to consider whether you estate plan is effective. Here are 5 ways you can make sure you have an estate plan that reflects your wishes now that you have welcomed your bundle of joy:

          1. Update (or Create!) your Last Will and Testament
If you or your spouse do not have Wills, there is no time like the present to make one! If you already have Wills, look them over. It is likely that they will not do what you need them to do now that you have your little one. For example, most Wills created for married couples without children are "sweetheart wills," where each one leaves everything to the other - This part will likely stay the same now that you have your new arrival. What is likely to change is what comes next. Should something happen to you and your spouse, you want to ensure that your child is taken care of financially. (See number 3)

          2. Name a legal guardian
Should something happen to you and your spouse, you'll also want to make sure you have an input into who will become the legal guardian of your child. While a judge will have to confirm the guardian for your child, the parents' wishes are typically honored. Take time to talk to your spouse about who you would like to take the responsibility for raising your child should you be unable to. There may be a number of important factors to consider, but ultimately it comes down to who you believe will do the best job raising your child.

          3. Consider setting up a trust for your child
Trusts can be used for a variety of purposes including to minimize estate taxes, shield assets from potential creditors, or preserve assets for minor children until they are a certain age. There are several types of trusts you could consider in developing your estate plan including Living (or Revocable) Trusts, which allow you to maintain control of the trust, changing or even dissolving it, for as long as you are alive, Irrevocable Trusts, which cannot be changed or dissolved once created, and Testamentary Trusts, which are established by your Will and will not come into existence until your will is probated. There are pros and cons to each of these types of trusts which you can learn more about here. Keep in mind that creating and maintaining trusts can be expensive and there are some disadvantages that may affect you. If you are interested in the option of setting up a trust, you should consult the services of an experienced Estate Planning attorney.

          4. Think about purchasing or increasing your life insurance
If you do not have life insurance, you may want to consider investing in a policy. If you already have life insurance, you'll want to examine your policy to make sure it provides enough support for your growing family. The best way to determine if you need life insurance and if so, how much you should get, is to consider how many people depend on your income. If, for example, you and your spouse both worked full time before the birth of your child, but now one of you will be staying home, you will have two people who depend on the income of the working member of the family (one adult and one infant). In this case you may need more life insurance.

          5. Re-examine your estate plan components once a year
You can use your little one's birthday as a benchmark for re-examining your estate plan annually. When you keep up with it, the process should be very short. You will just ask yourself if you have had an major life events in the past year (e.g. birth, death, marriage, divorce) and whether that impacts your estate plan. Keeping your estate plan up to date will ensure that your family is well taken care of should anything ever happen to you, and it will give you some peace of mind moving forward.

If you would like more information on the estate planning services offered by The Law Office of Keith Taylor, or to set up a free estate planning consultation, visit our website here. Learn more about Author, Jessica Czaya, here.

Three Types of Trusts Available for Estate Planning

Please bear in mind that there are many types of trusts and this is only a brief description of three of the most commonly used trusts for estate planning. You should discuss your options for trusts with an experienced estate planning attorney.

1. Living (revocable) Trusts: With a living trust, you maintain control of the trust and can change or dissolve it as long as you are alive. Unlike a will, a living trust is not part of the public record. The trust can also be used to help you protect and manage your assets if you become incapacitated. However, assets in a living trust are not protected from creditors, and you are subject to income taxes on income earned by the trust. In addition, you cannot avoid estate taxes using a living trust.

2. Irrevocable Trusts: Unlike a living trust, an irrevocable trust can't be changed or dissolved once it has been created. You may have to pay gift taxes on the value of the property transferred into the trust. However, all of the property in the trust, plus all future appreciation on the property, is out of your taxable estate. Property transferred to your beneficiaries through an irrevocable trust will also avoid probate, and property in an irrevocable trust may be protected from your creditors.

3. Testamentary Trusts: Established by your will, these trusts don't come into existence until your will is probated. At that point, certain assets passing through your will can move into the trust. After probate, these trusts work very much like other trusts. The terms of the trust document control how the assets within the trust are managed and distributed to your heirs. And, since you have a say in how the trust terms are written, these types of trusts give you a certain amount of control over how the assets are used, even after your death.