Should I set up a Trust for my Newborn?

Do you feel like you're seeing new parents and babies everywhere? You're not alone.

During the COVID-19 pandemic, many Americans were required to stay at home long-term, especially for those in professions that allowed remote work. This meant that while families were sheltering in place, some were having some fun.

Studies have found that although there was an immediate decline in birth rates, the rates quickly rebounded in what resulted as the COVID Baby Boom. Researchers from prominent universities report that the "baby bump" was most pronounced for women under 25 having their first child. There was also a baby bump for women aged 30 to 34, as well as women with a college education. This is attributed to their increased ability to benefit from work-from-home arrangements, thus creating conditions that encouraged more couples to start their families.

If you recently welcomed a new bundle of joy to your family, congratulations!

Here at Trust & Will, we always encourage new parents to put their estate plan in place to protect themselves and their loved ones. Today we'll be discussing the important topic of estate planning for new parents. More specifically, should you be setting up a Trust for your newborn baby? Keep reading to find out.

Recent New Parent? It's time for an Estate Plan

You may have already heard this advice from your business-savvy aunt, but if you've just started a family, then it's time to put an estate plan in place (if you haven't already.)

An estate plan is a vital tool that provides a secure roadmap for the distribution of your assets after your death. It's a comprehensive plan that includes key documents such as a Will, a Trust, a Power of Attorney, and Healthcare Directives. These documents ensure that your wishes are followed when you can no longer make decisions for yourself.

Here at Trust & Will, we always recommend for you to review and update your estate plan whenever an important life event takes place. We call these "trigger events," which include:

• Births

• Marriage

• Divorce

• Death

• Inheritance

• Acquisition of valuable property or assets

• Sale of valuable property or assets

If you don't already have an estate plan in place, then any of the above types of events is the perfect time to start. Know that estate plan isn't just about distributing assets. It's also an essential tool for protecting your family's future, especially when you've just welcomed a little one into the mix:

• Asset Distribution: It outlines how you want your assets distributed, ensuring your family's financial stability.

• Child Protection: An estate plan allows you to designate Guardians for your children, ensuring they are cared for by the individuals you trust the most.

• Tax Minimization: Proper planning can help mitigate the impact of estate taxes on your Beneficiaries, which in your case are likely your children.

• Probate Management: With an effective estate plan, you can help your family avoid a lengthy and costly probate process.

• Healthcare Directives: Your estate plan can include instructions for your healthcare if you become temporarily or permanently incapacitated. This can provide comfort and clarity for your loved ones during a difficult time.

• Power of Attorney: This document gives someone you trust the authority to handle your affairs should you become incapacitated. This is separate from your Medical Proxy named above, and has more to do with your financial and business affairs.

• Peace of Mind: Knowing that you have a plan in place to protect your family can provide peace of mind for you and your loved ones. As a new parent this is especially valuable.

Estate planning is a proactive step towards securing your child's future, keeping their best interests at the forefront even when you're no longer around to provide for them.

Will vs. Trust: Which One's Right for My Family?

Now that you understand why an estate plan is a powerful tool for family protection, you'll want to start thinking about the type of protection you want.

For example, at Trust & Will, we offer Will-based estate plans and Trust-based estate plans.

Here is what is included in our Will-based estate plan:

• Last Will & Testament

• HIPAA Authorization

• Living Will

• Power of Attorney

These documents combined provide a number of benefits, such as:

• Nominate child and/or pet guardians

• Decide who will handle your affairs

• Leave specific gifts (money, possessions, property, etc.)

• Determine how your assets will be distributed

• Exclude individuals from receiving your property

• Specify your final arrangements

• Note any special requests

• Decide what should happen in a medical emergency

• Designate health care agents

• Grant trusted individuals access to your medical records

A Will-based estate plan is extremely effective, and many individuals stop there. However, you may want to consider taking your estate plan to the next level by including a Trust.

The Trust & Will Trust-based estate plan includes:

• Revocable Living Trust

• Schedule of Assets

• Last Will & Testament (Pour Over Will)

• HIPAA Authorization

• Living Will

• Power of Attorney

• Certification of Trust

You'll see an increased number of benefits:

• Nominate child and/or pet guardians

• Decide who will handle your affairs

• Leave specific gifts (money, possessions, property, etc.)

• Determine how your assets will be distributed

• Exclude individuals from receiving your property

• Specify your final arrangements

• Note any special requests

• Decide what should happen in a medical emergency

• Designate health care agents

• Grant trusted individuals access to your medical records

• Add conditions to asset distributions

• Avoid probate court

Trusts are often used to protect assets and provide long-term financial stability for loved ones. They can be especially useful when it comes to planning for the care of a minor child. You can set up a Trust that stipulates when and how the assets will be distributed, allowing you to provide for your child's education, healthcare, and other essential needs.

But should you set up a Trust specifically for your newborn?

Should I set up a Trust for my Newborn?

A Trust is a powerful tool to add to your estate plan, especially if you have special criteria that you wish to be met. You can absolutely create a Trust for your child or children, and there are no rules that exclude newborns from its benefits.

Factors to Consider

When deciding whether to set up a Trust for your family's new addition, there are a number of factors to take into consideration:

1. Financial Implications: First and foremost, consider the financial implications. Trusts can be costly to establish and maintain, so it's essential to ensure that the benefits outweigh the costs. Luckily, Trust & Will offers an affordable option with the aim to increase accessibility.

2. Inheritance: Consider the age at which you want your child to have access to their inheritance. Some parents prefer to delay distribution until the child reaches a certain age or achieves a particular milestone, like graduation. A Trust makes special conditions possible by enforcing stipulations of your choice to better protect your child. Your appointed Trustee will be responsible for overseeing distributions in your absence.

3. Assets: You should also take into account the type of assets you possess. If you have significant property or business interests, a Trust can be an effective way to manage these assets and ensure they are passed on to your child in a structured manner.

4. Probate: Note that many assets that aren't held by a Trust are subject to probate. This is a costly and time-consuming process that could leave your child vulnerable in a time of need.

5. Peace of Mind: Finally, consider the peace of mind a Trust can offer. Knowing that your child's future is financially secure, regardless of what the future holds, is a comfort to many parents.

A Number of Benefits

Setting up a Trust for your newborn can bring a number of substantial benefits. First, it offers you the power to shape your child's financial future. By placing assets in a Trust, you can dictate when and how those assets are to be dispersed, ensuring your child is financially secure at key stages in their life, such as when they reach college age or buy their first home.

A Trust can also provide tax benefits. Assets held in a Trust can often avoid estate and inheritance taxes, making it a tax-efficient way to pass on wealth to the next generation.

Next, a Trust offers a degree of protection against creditors. If the unthinkable happens and your child incurs significant debt later in life, assets held in a Trust are typically safe from claims by creditors.

Last but not least, setting up a Trust can avoid the often costly and lengthy process of probate. This means that your child will have quicker access to the assets when they are needed most.

While setting up a Trust for your newborn requires careful thought and planning, the potential benefits in terms of financial security, tax efficiency, and protection make it a consideration worth exploring.

Setting up a Newborn Trust in 7 Steps

Setting up a Trust for your newborn might seem like a daunting task, especially if you're creating an estate plan for the first time. Don't worry - we've broken up the process into seven simple steps that you can follow:

1. Specify the Purpose of the Trust: Start by determining your primary reason for creating the Trust. What are your aspirations for it and what do you hope it will achieve? This might be financial security for your child, or ensuring they have funds for significant life milestones.

2. Choose the Type of Trust: There are a variety of Trusts to choose from, each suited to different needs and circumstances. They are divided into two larger categories of Revocable and Irrevocable Trusts, which essentially are Trusts you can change and those you cannot change. This decision will determine whether or not you can withdraw assets once they've been placed in the Trust. Learn more about different types of Trusts here.

3. Appoint a Trustee: Often, the Trustor (creator) manages the Trust during their lifetime. However, consider who will manage the Trust once you're no longer there. This will be your Trustee and should be someone you can wholeheartedly trust. We also advise naming alternate Trustees in case your first choice can't fulfill their duties.

4. Select Assets to Fund the Trust: Depending upon your financial situation and objectives, you may decide not to put all your assets into one Trust. Some individuals even create multiple Trusts based on their intentions for their assets. Although it may not be necessary, for example, you might create a Trust for each child, or create Trusts for specific purposes (a Trust for college, a Trust for preserving family property, etc.)

5. Draft the Trust Documents: Consider specific provisions you want to include that will govern when and how your estate is distributed. For instance, you might specify that certain amounts be released at different ages or milestones.

6. Legally establish the Trust: After drafting the Trust documents, formalize them by signing your documents in front of appropriate witnesses. To add an extra layer of legal protection, consider having your documents notarized.

7. Transfer Assets into the Trust: The final step involves transferring the chosen assets into the Trust. While in most cases this is a simple title change at a bank or investment company, some Trusts may require creating new accounts, transferring assets, or quitclaiming deeds in the name of the Trust.

Simplify Your Life: Create Your Newborn Trust with Trust & Will

Becoming a new parent is overwhelming. Sleepless nights, endless feedings and diaper changes, that in itself is a lot to get used to. On top of it all, now you have a human being to protect and whose future you need to plan for.

Understandably, creating an estate plan can feel like a daunting task to take on during this time. However, as is the case with many important duties, timing is of the essence. The sooner you can put protections in place, the sooner you can have peace of mind. There is too much at stake to procrastinate.

Trust & Will is here to help simplify your life. We know that life gets busy, so we took an often complex and prohibitive process and made it easy, affordable, and accessible. Our platform provides a seamless estate planning experience for first-timers and advanced individuals alike. Find out for yourself! Next time your little one goes down for a nap, take our quiz to get started and find out all that we have to offer, including a Trust to protect your loved ones.

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Trust & Will is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice.