For new or expecting parents, pregnancy can be an overwhelming physical and emotional experience. Aside from mom carrying some extra pounds, there’s the anxiety surrounding issues like preparing a baby’s room, picking a name, and dealing with a host of logistical items.
Of course, this is only the beginning. Once the baby is born, the level of complexity only increases, and even with the best laid plans, it ultimately means one thing: Life will never be the same. And while this may be the last thing in the world that new or expectant parents want to think about, this also means that life will never be the same financially. That's why it’s important to deal with a wide range of current and future financial planning items.
Here are three estate planning tips for new or expecting parents in South Dakota.
Tip #1 - Think About College Planning
Parents who get a jump start on saving for college are far more likely to have the means to cover most, if not all, of their child’s tuition. If current trends continue, 18 years from now college costs will range from merely very high to astronomical. Above all, consider setting up a 529 plan as soon as your child is born. This is a simple and easy way to set aside money in an education-targeted way. These accounts grow on a tax deferred basis, while the distributions are free of federal taxes as long as the proceeds are used to pay for higher education.
Tip #2 - Create Wills, Trusts and Estate Planning
Everyone who has or is expecting a child should have a will. No exceptions. The same goes for having a trust and an estate plan. Also, first-time parents may sometimes have other relatives named as beneficiaries for certain investments. This means that parents must ensure that they go through all forms in connection with their personal savings accounts, retirement plans, investment accounts, and insurance policies to designate their spouse and children as the beneficiaries.
Tip #3 - Choose a Guardian and Trustee
If something happens to you as parents, your child will require individuals to cover two roles for his continuing needs - a guardian and a trustee.
A guardian tells your child where he will go to school, when to brush his teeth, and when he should go to bed. It is important that you have a detailed discussion regarding who should be your child’s guardian if neither of you are around. Also, you should always ask your choice of guardian whether they will accept the responsibility. Appointing someone as a guardian may seem like an honor, but it can also be the ultimate burden.
A trustee is the financially-empowered individual in your child’s life. Your trustee pays bills for your child, files any income tax returns due, invests left-over money and ultimately may (or may not) distribute the remaining funds to your child at some time. Remember that a trustee may be required until your child is financially responsible (which could be 30, 40 or never), so name alternatives in case your trustee can no longer serve.
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