The Basics of Estate Planning for New Parents

The Basics of Estate Planning for New Parents

No one likes to talk about estate planning. I mean, who wants to plan for their death? Anyone?

But for new parents especially, it’s an important topic because your estate plan is how you ensure that your children will always be in good hands, both financially and emotionally.

And while the Hollywood version of estate planning usually involves everyone waiting anxiously to hear who gets what from their rich relative’s will, there’s a lot more to it than that.

In this post you’ll learn about the most important pieces of a good estate plan so that you can start to get your own plan in place.

Life insurance

Life insurance provides the financial resources your children would need to get themselves from childhood to adulthood.

Typically, the younger your family, the more important life insurance is. That’s because your children have longer until they will be able to support themselves, and because you’ve had less time to build up savings that could help them.

For more on life insurance, you can check out my four-part series that walks you through the entire process.


Your will is the primary tool you have for deciding ahead of time how your family would be cared for if you died.

For parents, the primary purpose of your will is to name guardians for your children. A will is the only way to do that, and it’s a decision that would otherwise be left up to the courts at the time of your death.

So while this isn’t a fun thing to think about, it’s better to make the decision now so that you can have control over it. You can even name secondary and tertiary guardians just to cover all your bases.

You can of course also use your will to decide where your money and property would go, and even to specify how your pets should be cared for.

A common strategy is to create provisions for a testamentary trust inside of your will. By doing this, money you leave behind would go into a trust for your children and you would appoint someone to be in charge of it for them. This makes sure that there is both money available for your children and someone you trust there to manage it.

Beneficiary designations

Certain types of accounts have beneficiaries or payable on death (POD) designations. These designations determine who would get the money in those accounts and they supersede anything you have specified in your will.

For example, you were likely asked to name a beneficiary for your employer retirement plan. If you died, the money inside that account would go to that beneficiary, even if you expressed something else in your will.

Which means that it’s important to review these designations and keep them up-to-date through big life changes like marriage, divorce, and birth. That way your money will always be going to the right people.

Here are some common types of accounts that use beneficiaries or payable on death designations:

  • Employer retirement plans
  • IRAs
  • Investment accounts
  • Checking accounts, savings accounts, and CDs
  • Life insurance

Health care proxy

A health care proxy, or heath care power of attorney, names someone to make medical decisions on your behalf in case you’re ever not able to make them for yourself.

Like everything else here, this is a pretty morbid thought. But there are certain situations where you may be in need of serious medical care, and if you’re not able to make your own decisions then this document would ensure that someone you trust could make them for you.

Durable power of attorney

A durable power of attorney is essentially the same thing as a health care proxy, but for your finances instead of your health.

It ensures that someone you trust could step in to pay bills and handle other financial needs in the case that you weren’t able to do it yourself.

You can make this unconditional so that the person you name has access to your accounts at all times. Or you can make it conditional upon something like being incapacitated or traveling in another country.

Living will

In addition to your health care proxy, you can create a living will that provides instructions for how you would like your medical decisions to be handled in case you aren’t able to make those decisions yourself.

This serves two big purposes:

  1. It ensures that you’re treated the way you’d like to be treated.
  2. It relieves your family members from having to make some potentially difficult decisions on your behalf.

Peace of mind

With those things in place, you’ll have put your family in a good position to get both the emotional and financial support they need if you pass away.

And while this isn’t the most enjoyable part of your financial plan, I guarantee your family will appreciate it.

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25 Comments... Read them below or add one of your own
  • Holly Johnson May 6, 2013

    We have worked in the mortuary business for what seems like forever and you wouldn’t believe how many people don’t take any of these steps before they pass. It makes things much easier on the family if some things are done ahead of time.

  • This is something that my wife and I need to get serious about. We need to sit down and get to business before we wait too long. Thanks for the reminder.

  • John S @ Frugal Rules May 6, 2013

    Good post Matt! Having worked in the life insurance industry for several years, in the past, it’s truly sad how many completely overlook this. Our last piece to the puzzle was to get our wills done several years ago. It was tempting to do it online, but with something so important it was worth it to me to pay the extra to make sure it was done right.

  • Greg May 6, 2013

    Great advice and reminders. I really need to get on a couple of these. I have some life insurance, but need to up it as well as the will. I really think in a lot of ways, it is just things that people don’t want to think about and that can be very dangerous.

  • Matt Becker May 6, 2013

    I’ve definitely heard some horror stories. It’s not a fun topic but it’s also definitely not something you want to ignore.

  • Matt Becker May 6, 2013

    Sure! It’s really not all that bad if you can find a good attorney. Ours made it all really easy for us.

  • Matt Becker May 6, 2013

    I’m definitely in the same boat in that I wanted to get professional guidance. Like you said, just too important to chance it.

  • Matt Becker May 6, 2013

    I definitely think life insurance and the will are the most important pieces. I think you’re right that most people just don’t really want to think about it. It’s not the most fun topic in the world. The alternative though, which is needing them and not having them, is even more scary.

  • We’ve got insurance and each other listed as beneficiaries, but don’t officially have a will. Not having kids has made it not feel particularly urgent, but maybe I’m wrong.

  • Matt Becker May 7, 2013

    I think you’re right that it’s much less urgent without children. For you guys, the will would mostly serve to dictate who would receive whatever property/assets didn’t have a legal beneficiary, which may be a lot or may not be much at all. Either way, in my opinion that’s much less urgent than assigning guardians for your children. I think the beneficiaries on your accounts are likely a bigger deal for you, and it sounds like you’ve got those handled!

  • The Frugal Path May 7, 2013

    We’ve been pretty lax in the area. It’s not a situation that I want to be in though. We’re like the PoP’s, but I know that we need it so that if that time comes, we’ll be prepared.

  • Matt Becker May 7, 2013

    Updating beneficiaries on your accounts is pretty simple. Without children, I would think that doing a will online is probably a good enough strategy, unless you have significant assets that you’re worried about going to the wrong people.

  • Laurie @thefrugalfarmer May 7, 2013

    Great stuff here, Matt. I know SO many people who’ve not done any of this stuff yet. Important point about keeping things up to date too. Relationships and people change, and the people you wanted to get your money/kids, etc. may not be the same people you want to get them now.

  • Matt Becker May 7, 2013

    It definitely seems like it’s an area that a lot of people ignore. And you’re absolutely right about things changing. Important to stay up to date on everything.

  • J W_Umbrella Treasury May 7, 2013

    This is a great post. You’re absolutely right that no one likes to think about estate planning, but it’s essential to do so.

    My family had a bit of a scare two years ago. My dad — who was a very healthy, active 55-year old — was admitted to the hospital with pneumonia. He was then transferred to the ICU and diagnosed with acute respiratory distress syndrome. He was in an induced coma for several days and the doctors weren’t optimistic. Even with treatment, ARDS is fatal in 50% of patients. There was a very real possibility that my dad would not survive. Luckily, he pulled through and has had little residual effects. But the experience was a reality check for all of us. No one expects a healthy 55-year old person to have a near-death experience. It really highlighted the importance of having all of these “end of life” matters in order, even if the prospect seems far off.
    Thanks for providing such a thorough post.

  • Matt Becker May 7, 2013

    Oh wow, I’m so glad your dad is okay! You’re absolutely right that this stuff can hit at any time. Much better to be prepared in case it does than to simply hope it doesn’t.

  • Shannon Ryan May 7, 2013

    I LOVE this post. This is the area I get the greatest push back from my clients; they really don’t want to confront their own mortality. I get it; it’s an uncomfortable topic at time, but it’s an important one. It always boggles my mind that we don’t question the need for home/renter’s insurance or car insurance and will even insure expensive heirlooms, etc – but won’t insure our lives and our ability to earn the money to afford all those lovely things. As a parent, a will is incredibly important – I want to make sure that I have not only provided for the care of my girls through my life insurance policy but also ensure that they are getting cared by the people I designate, not the State. Great post, great information.

  • cashRebel May 8, 2013

    Because I’m still young with no dependents, I don’t have to worry about this stuff, but I should probably start asking my parents if they’ve made these types of arrangements…

  • Matt Becker May 8, 2013

    Thanks Shannon! It’s great to get some input from a professional with real experience here. I think part of the problem of life insurance is that it doesn’t feel like an immediate need, and as you said it makes people confront their own mortality, which isn’t all that fun. But like you said, while it’s uncomfortable, it’s important. Thanks for the input!

  • Matt Becker May 8, 2013

    Great point about talking to your parents. That’s something we should all be on top of.

  • Matt Becker May 9, 2013

    Not an easy conversation to have, but I definitely agree that it’s an important one. Good luck!

  • amber tree March 8, 2016

    Preparing for the worst case scenario is seldom the top item on ones list. Yet, it has to happen.
    We go for life insurance and beneficiary designations.

    Reading your list, it looks like there is a lot more we could do. Thx for opening my eyes

    • Matt Becker March 9, 2016

      Sure thing Amber! Feel free to reach out if you have any questions here. And good luck!

  • Money Beagle March 9, 2016

    Good information. We have about half of these in place. I think the most important ones are life insurance and the associated beneficiaries and we have always made sure that we’re covered there.

    We definitely need to get working on the others. Thanks for the reminder 🙂

    • Matt Becker March 9, 2016

      I’d put a will right at the top in terms of importance simply because it’s how you decide who would take care of your children. But life insurance and beneficiary designations are right up there too.

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