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Four estate planning essentials families with young children should consider

Estate planning is different for families with young children. While older individuals often focus on the division of a lifetime of accrued wealth, parents have another main objective: providing for their children in case of an unforeseen event that claims the life of one or both parents.

Of course, a tragedy like that is something that most people do not want to consider. However, having an estate plan in place is a good idea, just in case. You may never need it, but you will gain peace of mind knowing that your children are protected.

Here are four things parents of young children should consider when creating an estate plan:

1. Naming a guardian. If something happens to one parent, the other spouse can take care of the children. But, what if something happens to both of you? You and your spouse should designate a guardian in your wills. (To avoid confusion in the event of the loss of both parents, it is a good idea for both wills to designate the same person.)

Choosing a guardian is a major decision. A guardianship is a life-changing responsibility, so careful consideration is necessary. You may want to choose someone with a lifestyle and religious beliefs that match your own. You should also consider that person's financial situation and residence.

Sit down and talk with the preferred guardian to see if that person would be willing to care for your children in the event of a tragedy. Explain your expectations and discuss logistics. Make sure that the guardian knows your plans and understands the commitment.

2. Naming someone to administer the estate: Settling an estate can be messy and complicated. To protect your children's interests, your estate plan should name a capable executor or trustee who will handle your financial affairs. This person will need to do things, including locating, valuing and distributing assets, paying bills and consulting with other advisers, as necessary.

3. Transferring assets to the children: If you do not have an estate plan, state law directs how your assets will be passed on to your children. Generally, the court will appoint someone to manage your children's inheritance until they turn 18, and then give it to them in equal shares. The funds could end up being managed by someone you never met, and at a cost.

When you create an estate plan, you may create a trust that will hold assets passing to a child under age 18. You can then name a trustee of your choice - someone you know and trust - who will manage and distribute trust funds to cover your children's health care, education and other important expenses.

When you create the trust, you can also designate the age at which the trust ends and the money disburses to the child. This does not have to happen at age 18. When you think about it, 18 is a young age. Few 18 year olds are ready for the responsibility of appropriately managing an inheritance. That's why many parents choose to structure the trust another way. Principal can be distributed in increments or all at once when a child is older and more mature.

4. Planning for serious illness or disability: Many people think about estate plans in terms of the loss of a parent, but estate planning can also be a valuable tool to protect children in the event that their parents become seriously ill or disabled.

As part of the creation of an estate plan, parents should consider powers of attorney, which give a trusted individual the authority to manage family accounts and pay bills. They should also consider health care directives, which can help loved ones make major medical decisions in the event a person is unable to speak for him or herself.

Reviewing your insurance needs should be part of the estate planning process as well. Additional coverage may be needed to provide for your children until they are grown, in the event that you are unable to work or after the loss of a parent.

Most parents never need to use the extra insurance or estate planning provisions they put in place for their young children. That's the way it should be. But creating a complete estate plan designed to protect your children is the responsible thing to do. More than that, it will bring you peace of mind so that you can relax, knowing that your children will be protected, just in case.

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