Ryan and Jen are twenty-somethings with good jobs, a new house and their first child on the way. They bought the house last year and are comfortable with their financial commitments even with Jen planning to take maternity leave. A lot of people in this position may think they don’t need a will because they don’t have many assets. After all, everything is going to go to the surviving spouse anyway if one of them were to die, right?
Not necessarily. Dying without a will leaves the decision up to the courts to determine what happens to the assets. A bigger issue for Ryan and Jen would be who will raise their child if something were to happen to both of them.
You don’t want grandparents and siblings fighting over who should raise the child, least of all letting the court make that decision. You need a will to distribute your possessions and name a guardian for your child. The document will also name a custodian for any assets left to the child while they are a minor.
Life insurance proceeds and a possible wrongful death settlement could make this a sizable sum. Careful thought should be given to who you want to raise your child and who is to look out for their money. You may not want this to be the same person. Writing a simple will is not expensive. An attorney will probably charge a couple hundred dollars to prepare the documents.
You can also look at online services to do-it-yourself. www.nolo.com and www.legalzoom.com both have packages for under $100 that you can download and complete on your own. Best sure to follow the procedures for your state to make sure the will is executed properly.
Once the will is in place it’s time to review your insurances. Most health insurance plans will automatically cover your new child for the first 30 days. Afterward you will need to add the child to your policy. Typically, if you miss the 30-day window, you will have to wait for the next open-enrollment period which could be 3 to 6 months away. This would be a good time for Ryan and Jen to consider covering everyone on Ryan’s health plan in the event Jen decides she doesn’t want to return to work after the baby is born.
Next on the insurance list would be reviewing life insurance coverage. You want to have enough coverage to provide for either spouse if they end up being the survivor. A good rule of thumb is 10 years of earnings. Use your current take home pay and multiply it by 10 to determine the amount of coverage you need. Most employers will provide a multiple of salary as an automatic benefit. You can either increase this amount through your employer or buy a separate policy.
The advantage of having your own policy is that it is portable and will be less expensive if you are in good health and a non-smoker. A good place to shop for quotes is at www.accuquote.com or at www.insure.com.
Finally, raising children is expensive and the government provides a couple of tax benefits to help ease the burden. Make sure you take advantage of these at tax time. The first is an additional personal exemption of $3,650. This is a reduction of income by that amount and will save you the tax on that income. Even more valuable is the $1,000 child tax credit that you can take until the child turns 17. This is a $1,000 reduction of the tax due.
When Jen goes back to work she can claim the child-care tax credit. This credit is equal to 20% of the first $3,000 spend for the cost of care for one child or $6,000 for two or more children. Higher income families may not qualify for these tax breaks. You should check with a tax professional to see if you qualify.
A new baby is an exciting time that comes with a lot of life changes. Don’t overlook financial issues in the excitement. Make sure you have these items covered.