An Estate Planning Checklist for New Parents
Beneficiary Designations: For young parents who designate beneficiaries on their retirement accounts, after a spouse there are a lot of options for backup beneficiaries. (I had my parents and brother listed prior to my son’s birth). Remember to review the beneficiary designation form for all retirement plans to be sure they’re current after a child is born.
Life Insurance – Similar to retirement plans, it is important to update life insurance policies to account for new members of the family. If these beneficiary forms are not updated, the named beneficiary on the account (even if that person was designated decades ago) is going to have priority over the funds over your own child. (And see my helpful information below).
Trust/Will – Double-check how your Trust or Estate assets are distributed by reviewing those documents to be sure a child born after signing is accounted for properly. I should note that if your Trust says everything goes first to “children” or “issue” before being distributed to other beneficiaries, then your children are covered even if they were born after the Trust or Will was signed. (For instance, my Trust/Will took the possibility of children into account prior to Brewer being born so he’s covered).
529 Plans – One last item to consider. When there’s a new baby around, some parents or grandparents might kindly set up a 529 plan to save for that child’s education. If you do this, please set up a backup “owner” on the account so that if you are the account holder and you’re incapacitated or deceased, there is someone available to distribute the funds from the account later for the child’s benefit.
Minors and Beneficiary Designations – Please be aware that you likely don’t want to name a minor directly as a beneficiary of your retirement plan or life insurance. That’s because minors are not allowed to simply collect the funds without some sort of Court process which is a lengthy and costly hassle. Instead, consider these two options if possible:
Appoint a “Custodian” to manage the account for the minor’s benefit like this: CUSTODIAN NAME, for the benefit of MINOR NAME, until age 18 under the California Uniform Transfers to Minors Act (CUTMA).
If the account provider won’t allow the Custodial approach above, you could always name your Trust as the backup beneficiary to your spouse (or as the primary beneficiary if you’re single) as a last option. This doesn’t offer the best tax outcome, but it’s better than having to go to Court!