Have you recently welcomed your first child into your family? If so, it may be time to get some of your financial documents in order. These are some things you may not have considered before having a baby. This video from SmartMoney TV quickly runs down the basics: which documents are necessary and why.
1. Draft a Will. A will is a legal way to assign a guardian, because the court won’t recognize survivor’s claims. Also, without a will, your estate will be split between your surviving spouse and children by default in many states. Your will can ensure that the money is distributed as you see fit. Here are more reasons to draft a will. Watch out for companies selling overpriced will kits. Here’s an example last will and testament to get you thinking about what to include.
2. Set Up a Trust. Trusts define who is charge of the estate should something happen to both parents. It also can define the age at which point the children would receive money. In the interview within the video, the couple has decided that their children would not receive their inheritance until their mid-thirties. Here are instructions for setting up a trust.
3. Get Term Life Insurance. The financial advisor interviewed in the piece recommends getting five times your annual income in term life insurance. Term life insurance is often recommended over whole life insurance. This article from Motley Fool is a good introduction.
4. Check Your Beneficiary Designations. Retirement benefits, 401(k)s, and IRAs are passed on to individuals outside of your will, based on the beneficiary designations you choose, usually when initially setting up your account. I don’t currently have beneficiaries on my retirement accounts. I should take some time to update this. You can change beneficiaries as often as you want, and if you have someone in your life, there’s no point in waiting.