New and young parents often have several things in common. They often have a home with relatively little equity, and very little else. Hopefully they have a decent job or jobs, and decent prospects for advancement. When they think about estate planning they often just worry about naming a guardian for their children – which is a good thing, and then just want to make sure their money, to the extent they have any, goes to the kids. Again, so far, so good.
What they fail to do many times is to grossly underestimate the money it will take to raise their young children and educate them. In other words, they only have a small fraction of the Life Insurance that is needed. Fortunately, term insurance is relatively inexpensive for young people.
How much? Any competent financial advisor can assist with the calculation, but we should be talking many hundreds of thousands — AND on both parents. At young ages don’t worry about “permanent” or “Whole Life” insurance. Get as much term insurance as is needed. Notice I didn’t say as much as you can afford — get as much as you need! Also, beware of the financial advisor or insurance agent who focuses on anything but term insurance. Worry about the Whole Life, or Universal Life when you are older and can afford it.
The next step is to establish a Trust to receive the Insurance and other assets. This can be done through a will created, or Testamentary Trust, or even better, as a Living Trust. This provides probate avoidance, asset protection, and professional management for the funds. Failure to take this critical step will likely result in the creation of an expensive, probate court supervised conservatorship, and a total distribution of remaining funds to the child at age 18. It goes without saying that this is a BAD THING!
Read our no holds barred Special Report for New and Young Parents for more detailed information and suggestions.
Most importantly — ACT NOW!