The other day I received a phone call from a client of mine who told me that his son and daughter-in-law just gave birth to their first child. After congratulating him on becoming a grandfather for the first time, he told me that he wanted my advice as to what advice he could give his son from a legal and financial standpoint. My client mentioned to me that his son did not have a lot of resources and that in the not-so-distant future, his daughter-in-law plans to go back to work.
The first thing I told my client is that whether his son was rich or poor really didn’t make a difference. There are certain things that he should do to protect his newborn. The first thing I recommended was that his son and daughter-in-law needed to do a will. A will is essential for anyone with children. Most people think that the reason you have a will is to make sure your property, upon your death, goes to the right person. Although that is probably the reason most people end up doing wills, it is not the most important issue for parents with minor children. To me, the most important issue is who will raise the children if the parents can’t.
The main benefit of a will in the case at hand is to name a guardian for the child. In the unlikely event that both mom and dad pass away while the child is a minor, the question is who will raise that child. For parents who don’t have a will, that means the decision will be left to the courts and that can create all sorts of family disputes. By having a will and naming a guardian for your child, you dramatically reduce the risk of having family difficulties.
I recognize that for a lot of young couples, money is always an issue and that is why some people choose not to do a will. That should not be an excuse. In fact, you can do a will for free. In Michigan, we have what is known as the Michigan Statutory Will which is a free, fill-in-the-blank will which fulfills the needs of many people. You can download a free copy of the Michigan Statutory Will by clicking on our website (www.bloomassetmanagement.com/bloom-university/forms-legal-tax.aspx).
I also recommended to my client that his son and daughter-in-law look at their life insurance needs. The question is if something happens to either one of the parents or both of them, what happens to the financial needs of the child. That is why I recommended he look at his life insurance needs. In that regard, for the great, great majority of people, I recommend term insurance. Term insurance is the most cost effective type of life insurance and it allows someone to truly cover their life insurance needs. In addition, with term life it is much easier to receive competitive bids. I always recommend that when you buy life insurance you should receive competitive bids. After all, why not save money if you can.
My last recommendation was that they consider setting up a college fund through something like the Michigan Education Savings Plan. My view is that as soon as you have a child, you should start thinking of their future education. By establishing a college fund, not only the parents, but other family and friends will have a vehicle if they choose to make a contribution for the child’s education. Just think, as opposed to family and friends buying toys for the child, which will last about 10 minutes, they could take that same money and add it to an education fund, something that will help the child throughout their lifetime.
Having a child is a wonderful event; however, it brings adult responsibilities. Therefore, if you are a parent, make sure you’ve taken care of the basics so that if something does go wrong, your child will be protected.