Introducing a little one to the family is a very exciting time. That said, there are some financial logistics to consider, before your bundle of joy arrives, that will help protect your family’s financial future.
These are the not-so-fun topics that are crucial parts of parenting – and are much easier to get in place before baby arrives. We’ve outlined a few of the most important financial planning steps below.
1. Life and Disability Insurance
Maybe you already have life insurance or maybe it’s just time to revisit your policy to make sure it still meets your family’s needs. Either way, this should be something you consider before baby’s arrival.
You’ll also want to consider your net worth and the amount of money you’d want to leave your partner/child to maintain their lifestyle in the case of your untimely demise.
Things to consider include outstanding mortgages, car debt, etc. The last thing you want to do is to leave your partner or child with a load of bills to pay and no cash flow, so it may be wise to over-estimate your coverage.
There are even insurance plan options that act more as savings plans. If you choose one of these plans and don’t end up using it, the funds you invest can grow – much like an investment account – and be used later in life.
Consult with a life insurance specialist or financial planner to get a better understanding of what plan might work best for you.
2. Estate Planning
This topic is the least fun, but it’s vitally important. The first piece of this puzzle is to get a will written and signed. There are many different templates available, but it’s advisable to use legal counsel and a financial planner to help.
Some standard clauses you’d want to cover include who will inherit what property, who will be the executor of your estate, and who will be the guardian for your child(ren). It should also address the management of any assets you want to leave to your children and assign a minimum age, if desired, at which they are able to access and spend down those assets.
3. Education Planning
Education planning is less somber in nature and can include many different options. With 18 or more years until your little one leaves home, time would seem to be on your side. But — as the saying goes — blink and he’s grown.
Now is the time to start taking the steps that will set your family up for financial success. One option would be a 529 plan, which seems to be the most popular. This can be started even before the little bundle arrives and then solidified after the baby’s arrival.
Coverdell education savings accounts are also an option. Or, you can choose a traditional investment account, which your child can’t access until they are 18 or 21, to ensure it’ll pay for their education.
Talk to your financial planner or investment advisor about which option may make the most sense for you.
While the above suggestions may seem like overkill, we encourage you to consider and make time for them before your family grows. Knowing you have all the documents and processes in motion to ensure your family’s financial success and protection will set your mind at ease. Let us know how we can help. For more information, contact Frances Olson at Clark Nuber.
Frances Olson is a manager in Clark Nuber’s tax practice. She serves not-for-profit organizations and high net worth individuals.
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