Becoming a parent is one of the most significant moments in most people’s lives – it’s a time of joy and celebration! The last thing anyone wants to think about is, ‘what will happen if I’m no longer around to care for them?’
But welcoming a new addition to the family makes it even more important to assess what provisions you want to make for their future, should you or your partner pass away prematurely.
If you don’t currently have a will, becoming a parent is the perfect time to address this, now you have a new, priceless asset to consider.
Here are some considerations for new parents when planning their estate.
Make a will
Making a will is more affordable than many people think, and a much better alternative to dying intestate, especially when you have young children who will be affected by any decisions that are made – with or without your consent.
Estate planning can seem like a daunting task, but it’s important to remember you can update and amend your will at any time should circumstances change. It’s an opportunity for you to specify which assets you’d like to be left to your children and how and when you’d like them to inherit.
It’s also a chance for you to appoint a legal guardian for your child in the event that both parents die before the child reaches 18 years of age.
As professional will-writers we will be able to give advice on the best ways for you to take advantage of the tax-free threshold for inheritance tax (IHT), which is currently set at £325,000. In addition to this, the residence nil rate band (RNRB) allows for a further £175,000 in property to be left, tax-free, to direct descendants – your children and grandchildren.
Here at Omni Lifetime Planning, we offer comprehensive estate planning advice and can help you make the best use of IHT allowances in your will. You can find more about our will-writing services.
Legal guardians
When you appoint a legal guardian for your child in your will, prenatal responsibility for that child passes to the named guardian, or guardians, following the death of the last surviving parent.
Appointing a legal guardian for your child, should you and your partner both die before the child reaches maturity, is a big decision, but it’s important for several reasons. If there is any discrepancy over the legal guardianship of a child upon the death of both parents, the child could be placed in care while the Court decides what will happen to them – something no parent would wish for.
A guardian essentially performs the role of a parent and covers the day-to-day care of the child, making decisions about their schooling, welfare, and healthcare until they are 18. It’s especially important to consider who will be legal guardian if any of your children have any special needs or require specialist medical care.
Grandparents, aunts and uncles, and even close family friends can be nominated as legal guardians for your child. It’s essential to discuss the guardianship with the person or people you’d like to nominate first, however. It’s also important to review your nomination every so often in case circumstances change and your chosen guardian is no longer able to fulfil their obligation.
Life insurance
Life insurance is more of a financial planning task than an estate planning one, but it’s certainly worth having now that your financial responsibilities have increased. Having a life insurance policy in place will help ensure your surviving family has financial stability if a parent dies. It’s a good way to replace any income that would be lost and provide the surviving parent with access to funds so they can support themselves and your children.
You will need to get copies of your recent medical records to complete any paperwork and answer the necessary questions for a life insurance policy. You can request this information free from your doctors, although be prepared to wait at least a week for them to send the records through to you.
Trusts
Another way to make provision for your children in the event of your death is to set up trusts. Trusts are used in estate planning to protect certain assets and keep them separate from the rest of the estate. You can use them to pass on property, possessions, financial assets such as stocks and shares, and sums of money.
Placing assets into trust ensures they are looked after by trustees on behalf of your child until your child reaches an age where they are old enough to inherit themselves. In the meantime, your child will still benefit from the trust at the discretion of the trustees and in accordance with your instructions and will also be able to make use of any interest it accrues.
Trusts can be used to apportion parts of your estate to any surviving children from previous relationships that may not otherwise benefit from your will. They can also have Inheritance Tax (IHT) benefits by reducing the value of your estate prior to IHT being applied.
Lasting Power of Attorney (LPA)
Once you’ve gone to the trouble of carefully drafting your will, nominating guardians for your children, setting up trusts, and ensuring you have a secure life insurance policy in place, it’s a good idea to appoint a Lasting Power of Attorney. This is someone you trust to make decisions on your behalf about your health and welfare and your assets should you become incapacitated.
Should this happen before your child turns 18, the person who is given power of attorney could end up making decisions that affect not only you, but also your child. For advice on this and any other aspects of estate planning for your family, contact us today.