Now that the Royal Baby Watch is over in London, it’s time to make recommendations on what new parents (or far-sighted parents-to-be) need to take on in the way of estate planning.
A Will is the proper place to name a guardian for the new member of the family in case something happens to both parents. When deciding on a guardian, consider whether the best person to raise the child is also the best at handling financial matters. If not, consider naming the physical guardian and separate a financial manager. Parents should consider leaving a letter of instruction with guidance about their preferences for how the child is to be raised, and how money should be spent. It is not binding, but can bring clarity to what the parents want for their child.
The Will is also the place to create a “testamentary trust” (a trust created by the Will) which can be the beneficiary of life insurance and retirement plans. These assets pass by beneficiary designation, and if a minor inherits, a court will have to step in to name a guardian to manage the specific financial assets. It is much better for the parents to decide who should be trustee of the trust. The trust should be listed on the beneficiary designation form as the contingent beneficiary after the spouse.
Each parent should also create a durable power of attorney, which allows a designated person to handle financial affairs if case of incapacity. Estate planners also recommend creating an Advance Medical Directive which includes a Living Will with healthcare preferences and end-of-life instructions, a Healthcare Power of Attorney designating who may make medical decisions, and a HIPAA Privacy Authorization to designate who may have access to medical records.