You have recently had a daughter, and you want to make sure you can provide what she needs for success. That means planning for her future if you die while she is young.
Here are two essential estate planning methods for protecting your daughter’s future.
Name a guardian
If you die without naming a guardian, the court will do it for you, so it is important to designate someone in your will. Above all, you want to find someone who will love, nurture and support your child. But you also want that person to raise your child the way you would have. Consider the parenting style, religion, education, morals and values of each potential candidate.
Perhaps you are thinking of a parent, aunt or uncle. Before you make the decision, consider age and health. You want someone who has the energy to raise your daughter and is likely to be around long enough to do it.
Distance may be a factor. If the person you choose lives a few states over from your family, your daughter may not grow up knowing her grandparents, aunts, uncles and cousins. Uprooting your child from her social life may also be traumatic. On the other hand, if the right person lives somewhere else, the location may not matter to you.
Set up a trust
Raising a child is expensive. According to some calculations, the first 18 years of your child’s life will cost over $250,000 just for the basic necessities: housing, food, clothing, transportation, health insurance and health care. If you want your child to have more than the bare essentials—be active in extracurricular activities, go on vacations, save for college, have birthday parties and receive Christmas presents—the cost may be much closer to $750,000.
Fortunately, finances do not have to be a factor in your choice, whether or not you have assets to pass on. You can create a life insurance trust and name a trustee to manage it. Then, fund the trust with enough money to purchase a life insurance policy. The trustee purchases this in the name of the trust, and the trust owns it.
You provide instructions on how the trustee should distribute the proceeds of the policy when you die. Then, you continue to fund the trust so that the trustee can pay the premiums. Upon your death, the trust is the beneficiary, and the trustee takes care of your daughter’s financial needs as you have described so that she never has to go without the things you would have provided for her.