If you’re a parent, protecting your children from harm is always top of mind. Preventing a toddler from falling down the stairs, making sure your child looks both ways before crossing the street, and requiring a helmet when riding a bicycle are virtually second nature.
Sometimes, however, potential harms aren’t so obvious and can result when something happens to YOU that directly affects your children. Having a plan in place in the event of your death or disability is a critical part of protecting your family.
To get an idea of how protected your family is, ask yourself the following questions:
- Would your family have enough money to live comfortably if you became injured and couldn’t work?
- If you were in an accident and rendered unconscious for several months, how would important family expenses get paid?
- Who would take care of your children if you died unexpectedly?
- Would there by sufficient assets left for their care and education?
- Would your kids receive their inheritance before they’re mature enough to handle a large sum of money?
If you’re not able to answer these questions – or if any of the answers scare you – then your family might benefit from legal and financial planning. A solid legal and financial plan functions like a safety net that is placed underneath an acrobatic performer. If something goes wrong and the performer falls, he or she might still get hurt, but the net prevents a much more devastating fate.
Like a safety net, a comprehensive legal and financial plan can protect your family if something goes wrong. Neither legal documents nor financial planning alone is sufficient to safeguard your family in the event of an unexpected setback. The legal documents work together in connection with certain financial planning strategies to form a tightly-knit safety net for your family.
Important Legal Documents
Below are the critical legal documents that every parent should have to protect their family in the event of death or severe incapacity.
A will serves two vital functions for parents with young children. First, it ensures that your assets will be left to the loved ones named in your will. Just as importantly, your will designates the person you choose to serve as guardian for your children if necessary.
A trust works together with your will and serves many functions. A trust can:
- Prevent your children from having access to a substantial inheritance at the age of 18;
- Keep details of your children’s inheritance out of the public record;
- Protect the inheritance from future spouses and other potential creditors;
- Avoid court interference with the administration and distribution of assets to your children; and
- If you have more than one child, a trust can ensure that your assets would be allocated according to each child’s needs.
Standby Guardianship Designation
The guardianship designation in your will is valid only when the will has been submitted to probate. The designation in your will would not protect your children in the event you were incapacitated if, for example, you were unconscious in the hospital. A standby guardianship designation authorizes someone to immediately assume legal guardianship of your children in this situation. In some states, the standby guardianship designation is included in your power of attorney.
Power of Attorney
A power of attorney is a legal document that designates a trusted person to manage your finances in the event that you were incapacitated. For example, if you were in an accident and ended up in a coma for a period of time, the person designated in your power of attorney would be able to pay bills and manage your finances during that time. This document is particularly important for parents who have young children to support. It can ensure that important family expenses, such as your mortgage, your children’s private school tuition, and your kids’ nanny continue to be paid while you’re not able to make the payments yourself.
A healthcare proxy authorizes a trusted person to make healthcare decisions for you if you are unable to make those decisions for yourself. A healthcare proxy can ensure that your wishes are respected with regard to end-of-life measures and also make those difficult decisions easier for your family members.
The legal documents above set forth the structure for how your assets would be managed and to whom they would be distributed. Financial planning is necessary to ensure sufficient assets are available to support your family.
Unless you have substantial wealth that could support your family if something happened to you, every parent should have life insurance, so that sufficient resources would be available to take care of your family if they no longer had your income to support them. Confused by the different types of life insurance? Check out our article on navigating the life insurance maze.
It is more likely that you would suffer from a disability than die at a young age; however, many people underestimate the risk and consequences of developing an injury or illness that leaves them disabled for a long period of time. Having proper disability insurance ensures that your family will be able maintain a similar lifestyle even if you’re unable to work.
An emergency fund is a sum of money that you set aside to pay important family expenses in the event of an unexpected bill or a financial setback, such as a job loss. The emergency fund should be kept in cash so that it’s easily accessible and isn’t subject to the volatility of the stock market. The fund should allow your family to live for at least six months, which will allow you time to find another job.
Property and Liability Insurance
Other types of insurance can prevent catastrophe in the event of an accident to your property or a lawsuit against you for injury to another person. These types of insurance include homeowners’ Insurance, auto insurance, umbrella liability insurance, proper business insurance.
Legal and financial planning for parents is critically important for protecting your children. Be sure to have a solid plan in place for your family.
Want to track what you need to have in place for your family? Click below for your own FREE fillable Family Safety Net Checklist.