Recently, my wife and I had the pleasure of welcoming our first child into the world, a healthy and happy baby boy. As a first-time parent, I have been overcome with a lot of different emotions and even more questions. Given my dual role as a financial advisor and also a new parent, I wanted to use this newsletter to give a firsthand account of the financial planning tools and strategies I plan to incorporate for my own child(ren). My goal as a parent is to put my son in the best possible position in order to have a successful life. In order to protect this goal and my family from the unexpected, my personal financial plan for my family will utilize savings accounts, insurance policies, and some basic estate planning.
Savings Accounts: In the future one of my goals is to have enough money saved that I will be able to help my child(ren) in some sort of monetary capacity. This financial gift will only be done if my wife and I are in a secure financial position and the gift(s) will have no effect on our long-term financial viability, including our retirement. However, in the meantime, I will be saving money for my son’s education, which is why I have started funding a 529 educational savings account. 529 accounts have many benefits, which can be read about in our article, here. The main reason I am utilizing a 529 account is for the potential tax benefits and being able to retain control of the funds. Under current tax laws, as long as the distributions from the 529 account are used towards qualified educational expenses, any realized gains in the account will be tax-free. If the money in the 529 account is used for something other than the approved educational expenses, then upon withdrawal, the gains may be subject to income taxes and potentially a 10% penalty. In addition to the tax benefits, I mention degree of control as a main reason because if a parent were to save for their child via a UTMA account, the child would legally gain control of the funds in the UTMA account when the child turns the age of majority, which in Louisiana is 18 years old.
Insurance Policies: Currently, my wife and I are in the process of insuring ourselves via life insurance policies. Should something happen to either of us, the life insurance will help the surviving spouse and our child(ren) maintain a comfortable financial position. If something were to happen to the both of us, then the proceeds will be left to a Trust with our child(ren) as the beneficiaries, to provide financial assistance to the custodian of our child(ren). When it comes to life insurance coverage there are a number of perspectives on how much coverage one should get and what type of policy you should buy. If you would like to learn more about life insurance and how much coverage you should get, considering reading our article on the topic, here.
In addition to life insurance policies, my wife has a long-term disability policy through her employer. Should she ever become disabled and cannot work for an extended period of time, this policy will supplement part of her earnings. With our son’s arrival to our family, I am now in a position where I should have disability insurance and am in the process of obtaining a disability policy.
Estate Planning: At this time, my wife and I are in the process of creating a Will and developing power of attorneys, including medical power of attorneys. We are structuring our Will so that if something happens to either of us, everything will be left to the surviving spouse. If something were to happen to both of us, while our child(ren) are still minors, we plan for the Will to state who will be the legal guardians (care for) of our child(ren). In addition to naming legal guardians, the Will is going to state what will happen to our assets. We will structure the Will so that a Trust will be created using some of our assets which will be invested for the benefit of our child(ren) with a named trustee administrating the rules of the Trust. The power of attorneys will be created so that each spouse will have authority over the other spouses’ financial and medical decisions should the ailing spouse not have mental capacity to make these types of decisions. (This paragraph should not be considered as advice, please consult with an attorney if you would like to create any of these legal documents.)
As mentioned, this is the strategy for my family at this time. I view this strategy as an ever evolving one and I will reassess it on a periodic basis. If you have any questions about the contents of this newsletter, please contact us.