What to Financially Expect When You're Expecting: Importance of Life Insurance, Wills, Estate Planning, and Children's Trusts

Pregnancy and parenthood can bring significant financial changes. I’ve experienced that as both a financial advisor and a father. It's crucial to consider financial planning in preparation for such life-changing events. Let’s discuss some foundational planning topics: life insurance, estate planning and a Children’s Trust.

Importance of Life Insurance:

Expecting a child means taking on new responsibilities and obligations. Should something unforeseen happen to you, life insurance becomes a vital tool in providing financial security for your family. Life insurance can help replace lost income, finance future child-rearing expenses, pay off outstanding debts, and alleviate the financial burden on your loved ones.

There are many types of life insurances to pick from. In most cases, the recommended type of life insurance to get is Term Life insurance and there are a few reasons why. First, what is Term Life insurance? Term Life insurance is an insurance policy with a fixed and defined death benefit and payment schedule that lasts the entire duration of the contract (10, 15, 20 or 30-years). 

Secondly, Term Life insurance tends to be the cheapest form of Life Insurance, depending on your age, amount of Death Benefit applied for and your overall health. When becoming a parent, there is a whole new set of expenses and finding ways to keep those expenses low makes all the difference when trying to plan and budget accordingly.

Wills and Estate Planning:

Establishing a Will and creating an estate plan is essential. These legal documents ensure your assets are distributed according to your wishes and minimize potential tax implications. Your Will should specify who will receive your property, name guardians for minor children, and allow you to provide directives for end-of-life decisions.

Additionally, consider estate planning to ensure a smooth transfer of your assets to your beneficiaries. A well-crafted estate plan can provide ongoing support for your family's needs, minimize taxes, and avoid unwanted disputes.

Creating a Children's Trust:

A Children's Trust can be established within a Will or as a standalone document. This type of trust can provide long-term financial support for your children and protect their inheritance from potential risks like lawsuits, creditors, or divorce.

The Children's Trust can be customized to meet your family's specific needs, such as providing for educational expenses, housing, or medical care. Additionally, a trust can specify the age at which your children receive the funds, ensuring they are mature enough to manage the inheritance responsibly.

The contents and structure of a Children’s Trust is a very important and personal decision. This tool gives YOU the opportunity to lay out your wishes and specifications on when your children gain access to their inheritance, but also who controls the funds until your children reach that designated age. Deciding who controls the funds until your children are of age is also a very important, but personal decision. You will want to pick someone who can stand firm with your children and anyone else who may try to gain access to the money to ensure it is there when your children reach that designated age and are ready to handle that money themselves.   

It's critical to consider the financial implications and plan accordingly when expecting a child, as it is with any major life change. Life insurance provides financial security for your loved ones and ensures their well-being should something unexpected happen. Establishing a Will and estate plan can help manage tax implications and distribute your assets according to your wishes. A Children's Trust can further protect your children's inheritance and ensure it's used in a way that supports their long-term financial goals.

I encourage my clients to approach financial planning proactively, especially in this important phase of life. By taking these steps and seeking professional guidance, you can ensure your children's financial future and enjoy this overwhelming, joyous time with peace of mind.

Legacy Financial Group does not offer legal or tax advice.  Please consult the appropriate professional regarding your individual circumstances.