On April 26th, 2021 at 5:13pm, my wife and I’s lives forever changed for the best. My wife and I are both technically only children. We each have much older half siblings. Therefore, the first diaper in our life that we ever changed was on April 26th, 2021, for our beautiful daughter, Alaina. We were very inexperienced when it came to actually caring for a child, but the unconditional love came easily. You start to realize that every parent cliché is true. You would do anything to protect your child. You finally realize as a teenager why mom got so angry when you would not call or text back in a timely manner! (Sorry, Mom!)
After Alaina was born, as we stayed in the hospital for the next 36 hours, no family or friends were allowed to visit. It was just us and the nurses. During this calm, yet chaotic setting my mind started to question my family’s security and their future.
To think of our mortality is a difficult thing. To think of our mortality when we are holding a 7lb 14 oz bundle of joy is even more difficult. What would happen to my wife and Alaina if I were to not come home one night? Even worse, what if my wife and I went down in the same accident? Who would take care of Alaina, financially AND physically? Would it be the same person? Would my wife have to sell the house? If we set up all this protection, would we still be able to achieve our retirement savings goals?
Before Alaina was born, we had a few things in place. We had 6 months of fixed expenses in a savings account with an online bank. We were beneficiaries on our retirement accounts and had a joint bank account. We had no estate planning or life insurance, whatsoever.
Young parents with children under 18: If you don’t have a plan on who’s taking care of your children, should something happen to you both prematurely, your state of residence has a plan for you. If this is a concern of yours, simply create a will and name a conservator for your children.
An estate attorney who drafts your living trust, should also draft your Wills, Powers of Attorney (Financial) and Healthcare Directives. They will be able to walk you through what should be held in the trust. For most young families, the home and nonretirement investment accounts are the focus. If our home was not held in a trust, our children would have to deal with probate if my wife and I were to pass. Probate can take 13+ months and cost anywhere from 4%-10% of the CURRENT market value of the home. Retirement accounts are beneficiary designated, they bypass probate by the beneficiaries we elect on them and do not need to be held in a trust.
Within our trust, we decided to make my mom as the first successor trustee, and Christina’s mom as the legal guardian to Alaina (and any future children as well). Our in-laws are the opposite of the horror story movies that you have watched! They get along GREAT! This will allow my mom to focus on the financial aspect of our children’s lives and my mother-in-law to focus on the nurturing aspect of our children’s lives.
Our next step was buying life insurance. The longer we wait to purchase insurance, the more expensive it can become. We typically buy life insurance for four reasons. The first is that we LOVE someone. The 2-4th reasons are to protect our income (at least 5 - 10 years of income), to pay off debt, and to get kids through or to college.
We decided on term insurance because of the value. For my wife, we decided to ladder a 20- and 30-year policy of the same amount. This would provide us double the insurance for the first 20 years in a more cost-effective way than buying the whole amount on a 30-year term policy. As our home continues to be paid off and as we continue to accumulate assets, the 30-year policy should be sufficient once the 21st year begins.
I should have heeded my own advice on my life insurance. I often tell young folks, even if they are not married and do not have kids yet, it may be a good idea to purchase some life insurance. Life insurance gets more expensive the older we get and with more health issues. A recent Sleep Apnea diagnosis coupled with other health related issues, caused my rating to be below standard. As a family, we decided to purchase the same amount of insurance as my wife, but for only 20 years. We preferred the larger death benefit over a longer term to keep the premiums more affordable for our family. We also hope to continue to build our assets over the next 20 years. While not ideal to rely on employer sponsored insurance, I was able to add 6x my income in life insurance through Lincoln Financial Advisors in addition to the 20-year policy.
As Mike Lockwood previously mentioned in another blog, when it comes to finances, one spouse tends to be the “take charge” spouse (naturally as a planner, in our family it’s me) and my wife is the “trusting” spouse. My wife trusts that we would be okay, but would she know all the passwords? Would she know where the assets were, the titling, how much “love” insurance we had, employer benefits, etc.?
While we have not yet hired a financial planner for our family, we have created a financial binder that gets updated and shown to my wife once a year (always a fun date night!), everything has also been uploaded to our eMoney Personal Financial Website (the same website a lot of YOU, our clients have). This includes an e-copy of our financial documents including: living trust, beneficiary reports, account aggregation, collectible information on where to sell collectibles, if needed. I do not think my wife will see the need to have 28 Ben Roethlisberger Rookie Cards around 😊) and I have let Mike Kish (another planner on our team) know everything we have is on eMoney and that Christina would ask him for help.
Building Wealth tips for your children
- 529 College Savings Plans- Distributions are tax free if they are used for qualified education expenses. This can be housing, tuition, books/supplies, computer, software/internet access. You are allowed to use the full amount of college and vocational school tuition and required fees. If one child receives a scholarship and does not need the funds, you can change the beneficiary to another child (or even you!).
- UTMA Accounts- Can be used for anything, not just college. However, UTMA accounts count as children’s assets and during college aid calculations those assets will be weighted by about 20%, where 529s are about 6% since they are parental assets. The child will also gain full control over the funds at the age of maturity. (Some states are 18,21, or 25. California allows you to delay until their age 25). Contributions to an UTMA cannot be refunded and will always be the child’s asset.
- Adding your children as an authorized user to your credit card. It is comical to think of a 1-year-old with a credit card, but our reasoning was to help build Alaina’s credit as soon as possible. Eventually, also teaching her how to use credit responsibly. (Hello Travel rewards points!) This can help her build good financial habits that could last a lifetime. You do have to be aware that if you incur negative marks on your credit accounts that it can negatively affect your children’s credit too.
By no means is this a checklist for everything that can or should be done when having a family. This is just a brief insight into what we did as a family to protect our Sunshine and future children. Doing what works for your family is the best advice we have ever received. (Thanks, Mike Kish!). Design your estate planning, life insurance, and wealth building for what is best for you. Our team is happy to help you come up with that plan!
I wish all moms a Happy Mother’s Day and all dads a Happy Father’s Day!
Sean Hooper is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp. a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. 18400 Von Karman Avenue, Suite 550, Irvine, CA 92612, Phone: (800) 622-0734. Lincoln Financial Advisors Corp does not provide legal or tax advice. Oakwood Wealth Partners is not an affiliate of Lincoln Financial Advisors Corp. CRN-4769741-060122