While it is common for parents to make plans to support their family if a working parent is injured, incapacitated, or dies, it is also important to make plans in case these same circumstances happen to the stay-at-home parent. Stay-at-home parents make valuable non-financial contributions that would be expensive to replace. Do you have plans if something were to happen to the stay-at-home parent, how would the family’s needs be met?
The Hard Work of a Stay-at-Home Parent
While each family runs their household slightly differently, traditionally, stay-at-home parents are largely responsible for the following tasks:
- Cleaning and maintaining the home
- Accessing medical care
- Interfacing with schools
- Driving children to activities
- Preparing meals
- Shopping for groceries, household, clothing, and personal items
- Scheduling appointments
- Planning events
- Monitoring homework progress
Many of these responsibilities get overlooked and underappreciated. But have you considered how much time and money you’d need to complete them if the stay-at-home parent were no longer able to? The employed parent would need an additional source of income to outsource the tasks or would have to take time away from their job or free time to get everything done.
Developing a Comprehensive Estate Plan
Your estate attorney, insurance agent, certified public accountant, and financial planner can serve as members of your team to develop a comprehensive estate plan.
It is important to take the time to fully quantify the work of the stay-at-home parent. Your financial planner can help you determine the costs of outsourcing the tasks of running a household and caring for children.
A financiam l planner can also help you evaluate your current financial situation and help determine whether the working parent should make larger contributions to their retirement accounts or if they should contribute to a separate spousal individual retirement account in the name of the stay-at-home parent.
After meeting with your financial planner, consider meeting with your insurance agent to determine what type and amount of coverage you would need to obtain to cover the costs of the work by the stay-at-home parent. While life insurance is important, it is also important to make financial plans if the stay-at-home parent becomes disabled or incapacitated and can no longer run the household and take care of children. Disability insurance may cover these costs.
Certified Public Accountant or Tax Preparer
Meet with your certified public accountant to verify that you are claiming the right credits and deductions to fully maximize the working parent’s income.
A comprehensive estate plan protects your loved ones when you can no longer do so. Your money and property are protected and used in a way that meets your goals. If you have not created an estate plan, your state’s default plan will take effect. While state laws vary, money and property will generally go to the following people in this order:
- Surviving spouse
- Children and grandchildren
- Siblings’ children
The amount that each of these people receives also depends on state laws.
Having life insurance helps provide for your loved ones financially if you cannot, but it is important to ensure life insurance money will be used as you intended and not available to your beneficiaries’ creditors and predators. One way to do this is to name a trust as the beneficiary of your life insurance policy. A revocable living trust or an irrevocable life insurance trust can be used for this purpose.
Revocable Living Trust
- Is created during your lifetime
- Can be modified at any time as long as you are mentally competent
- Allows you to continue to manage your own property and accounts as the trustee of your trust
- Allows you to use and enjoy your property throughout your lifetime
- Provides the option to appoint a successor trustee who can step in and manage your affairs with no court involvement
If your estate is valued below the current lifetime estate tax exemption amount and for people who already have a revocable living trust, naming the revocable living trust as the beneficiary of your life insurance policy allows you to leave instructions in the trust document detailing how you want the money to be spent to benefit your trust beneficiaries.
Your successor trustee will need to follow your trust instructions, which ensure that your life insurance money is used according to your wishes. Using a revocable living trust, we can design a plan that will better protect this money from your beneficiaries’ creditors or divorcing spouses.
Irrevocable Life Insurance Trust
An irrevocable trust cannot be modified throughout your lifetime, but it provides an added layer of protection because you own the life insurance policy and can be named as a beneficiary.
You can either transfer ownership of an existing life insurance policy to your irrevocable life insurance trust or purchase a new policy for your trust.
Using your annual gift tax exclusion, you can make gifts to your irrevocable living trust to pay the insurance premiums.
Upon your death, your irrevocable living trust receives the payout from your life insurance policy. Your trustee will distribute the funds following the instructions in your trust document.
Since the irrevocable living trust owns your life insurance policy and the death benefit, this value is removed from your taxable estate, potentially saving money for your loved ones, especially if your accounts and property are valued close to the current lifetime estate tax exemption amount.
Naming a Guardian
As part of your estate plan, we can help you with naming a guardian for your minor children. As long as one legal parent is alive, they can continue or assume care for your children.
It is a good idea to name a guardian, and backup guardians, for your minor children, in case both parents become deceased or unable to care for the children.
You can name a guardian in your Last Will and Testament. However, this document does not go into effect until your death. It is also a good idea to have a separate document naming a guardian and backup guardians to care for your children if you and their other legal parent are alive, but unable to care for them. This document is separate from your will and must meet state law requirements.
If you do not make your wishes known by proactively and legally establishing your choice of guardian, a judge will decide for you. While family members are preferentially chosen, it is important that you make your wishes known on which family member you prefer to raise your children.
We welcome the opportunity to help you create an estate plan that will protect you and your family.