When my son was born last summer, I thought that my husband and I would spend the first few days in the hospital bonding with our new family member. I did not anticipate both of us being on the phone simultaneously with our respective insurance companies trying to understand when exactly the “qualifying event” occurred that would allow us to consolidate our health insurance plans.
As a financial advisor, I felt I had done my due diligence to understand not only the costs of having and raising a child, but also the necessary planning steps involved. Still, I was surprised. While it is impossible to prepare for absolutely everything, here are a few of the most important items to consider.
Wills/Guardians
One of the most important things to do when adding a new family member is to reach out to a legal professional to update or create a will. A crucial decision that will need to be made as part of this is who will be the child (or children’s) guardian should the parents no longer be present. It can be heartbreaking to think about, and family dynamics can often stall people from making this decision. It is important to remember that no decision is final, and this can be adjusted in the future. But it is also said that ‘if you do not make this decision, the decision will be made for you’ according to the laws of your state of residence. So, make a decision that seems right for now and get it on paper. Hopefully, you never need it!
Life Insurance
Many companies offer life insurance as an employee benefit. Often it is a multiple of your salary. The reality is that the financial needs of your dependent(s) may be beyond what your company will provide. You will want to consider a supplemental policy that covers future potential lost earnings.
Updating Beneficiaries
Do you know who is listed as your beneficiaries on your retirement accounts? It is a good practice to revisit these regularly. You may want to replace legacy beneficiaries in favor of newer family members. Some estate attorneys may advise you to list your dependent beneficiary using terms from your will.
Educational Savings
Educational costs continue to increase. However, there may be benefits to saving for college through a 529 plan. Contributions are done with after-tax dollars, but they grow tax-free if they are used for qualified educational expenses. Certain states also provide tax incentives for contributing to your state’s plan.
Health Insurance/Health Savings Account/Dependent Care Flexible Spending Account
Learn from my mistake! If you are consolidating health insurance plans with your partner, consider doing this during the open enrollment period instead of at the qualifying event. You can also choose a plan with a Health Savings Account which will allow you to put away pre-tax funds for future health care costs. When making your elections, consider a Dependent Care Flexible Spending Account, which will allow you to use pre-tax dollars to pay qualified out-of-pocket dependent care expenses, like daycare.
Even as an advisor, it took me about 6 months to complete these steps. But knowing they are taken care of, I can now turn my focus towards enjoying my family and helping my clients prepare for the future. The related documents are now sitting in a fire-proof safe, which my estate attorney advised me to get. In the wake of the tragic fires in California, that advice feels more prescient than ever.
At The Ross Group, we take the challenge of planning for the future off your hands so you can focus on your family. If you want more information on any of these items, please do not hesitate to reach out!