After welcoming a new child into the world, your end-of-life preparations are probably the last thing on your mind. More than likely, sleep schedules, diapers and getting to know your new baby will dominate your thoughts. While there is nothing wrong with taking the time to adjust to your newly expanded family, you shouldn't forget about the future. Now is the perfect time to create an estate plan.
If you did not take the time to create an estate plan -- even a basic one -- before your child's birth, now is the time. Updating existing wills and other documents is also necessary to ensure that the child has everything he or she needs should anything happen to you.
What happens if I don't have a will?
Like many other people, you might assume that, if you die without a will, your estate will automatically go to your surviving spouse, child or both. While they will likely receive a portion of your assets, they may not get as much as you would think. Other surviving family members -- including parents and siblings -- might have a legal claim to your estate. Fees and taxes might also eat up much of what you think your child would receive.
Even if you created a will before you had a child, this is not enough. An out-of-date will could leave your child without anything of yours. Sure, a lot of people might think that a deceased parent's estate should go to their child, but the law must abide by a person's will even if you created it years or decades in the past.
Include your life insurance policy in your plan
Did you know that your child or spouse will probably have to pay hefty taxes on the life insurance policy you left behind? The IRS might see more of the funds than your family ever will. Rather than cancel the policy altogether, use a trust to make sure your beneficiaries receive the payout.
A life insurance trust acts as a life insurance policy's owner. These trusts can circumvent the hefty estate tax leveraged against most policies and can pay out the policy's proceeds to the intended beneficiaries, usually in regular intervals.
Don't leave your family with nothing
Your family will have to jump through legal hoops and deal with added financial burdens if your estate must pass through probate without a will or any other guiding documents. For those already grieving a loss, this can be almost too much to bear.
As a new parent, take the time to establish an estate plan that protects your estate, end-of-life wishes and your loved one's futures. A will is a good place to start for most estate planning efforts, but a knowledgeable attorney can help you figure out which other documents would fit best in your plan.