Few people really want to do estate planning. It takes time. It costs money. It entails contemplation of one’s own demise.
For younger adults, the need to have an estate plan is less apparent, both because they are less likely to have accumulated assets and more likely to live many more years in perfect health. In many cases, younger adults only need a durable power of attorney and health care proxy, both appointing an agent to act for them in the event of incapacity.
But this changes completely once children are born. New parents immediately become responsible for their child’s well-being. The odds are strong that they will live at least until their children are adults, but they need to make plans in case a terrible event comes to pass, whether that be incapacity or death. In most cases, this should include purchasing life insurance and executing the following estate planning documents:
- Durable power of attorney. As mentioned above, everyone should use a durable power of attorney to appoint someone to make financial and legal decisions in the event of their incapacity.
- Health care proxy. Similar to a durable power of attorney, a health care proxy appoints an agent to make health care decisions in the event of incapacity.
- Guardianship appointment. Parents can nominate a trusted person to take over as a temporary or permanent guardian of their children in the event of their incapacity or death. The appointment while they are alive but incapacitated is through a separate form, and the appointment after death is accomplished through the parent’s will.
- Trust for children. Any money that a parent leaves a child must be managed for the child’s benefit while she’s a minor and in most cases well into her young adulthood. Most 18-year-olds are not yet ready to handle a substantial inheritance. Keeping funds in trust for them until age 25, 30, or later allows for responsible management of the child’s inheritance until she is sufficiently mature to take on these responsibilities herself.
This package of estate planning documents – durable power of attorney, health care proxy, guardianship appointment, will and trust for children – are both necessary and sufficient (along with enough life insurance) to provide for and protect one’s children in the event both parents become incapacitated or pass away. Unless there are unusual circumstances, such as a child with special needs or a larger, taxable estate, these are relatively straightforward to put into place.
Once their estate plan is executed, parents can rest comfortably knowing that they have taken the necessary precautions to take care of their children. Then, it makes sense to review the plan every five years or so to make sure that circumstances or laws have not changed in a way that require new documents.