Three important legal and financial steps you need to take before having a family
Planning to start a family? Here are three important legal and financial steps you need to take first. (If you already have a family there’s still time to get started on them.)
Naturally, as you prepare for parenthood, your focus will be on addressing practical matters and preparing yourself mentally for the magnitude of the life-changing task before you. The subject of mortality is likely to be the last thing you will want to discuss with your nearest and dearest at such a momentous time in your life.
It is not easy to contemplate your own mortality, let alone fathom the kind of future your loved ones might have without you. But suppose the unthinkable happened and you and your partner were to predecease your child:
- Who would be responsible for your child’s welfare?
- Where would your child be educated?
- Who would manage your child’s finances and how could you guarantee there would be appropriate provision?
Unsettling as these questions are, regularising your personal and financial affairs should be a top priority before becoming a new parent.
So, before getting too caught up in choosing a car seat, investing in a decent pram, and stocking up on muslins and JoJo Maman Bébé onesies, what should you be doing to get your affairs in order?
1) Prepare a will
First on the to-do list is making a will or, if you already have one, reviewing it to ensure it is up to date.
Not convinced that you need to have a will? Think again. A person dies without leaving a valid Will is known as “intestate” and the rules of intestacy determine how their estate is divided.
If a married person dies intestate, the estate is shared between the surviving spouse and the deceased’s children. The surviving spouse is entitled to the first £250,000 of the estate, all the deceased’s personal effects and 50% of the rest of the estate outright; the other half is divided equally between the deceased’s children.
For many couples this will not be a satisfactory outcome, not least because the survivor might face an unexpected inheritance tax bill.
A properly drafted will can structure the distribution of the estate to maximise any available inheritance tax exemptions and reliefs. You can also make provision in your Will to ensure that assets are ring-fenced for your children in the event that your spouse remarries and/or has children with another partner. This is particularly relevant to younger couples.
Bear in mind that unlike married couples, unmarried cohabitees have no right to inherit under the rules of intestacy. If a deceased cohabitee does not leave a valid Will then his/her surviving partner’s only hope is to apply to court for reasonable financial provision from the estate; a costly, protracted and stressful procedure at a time of intense grief. You can prevent this by making provision for your partner in a Will.
In modern society, it’s not unusual for marriage to follow the birth of a child. Marriage is an occasion which automatically revokes (i.e. cancels) a will unless it is stated to have been made in contemplation of marriage to a specified individual.
So, if you decide to tie the knot after the arrival of your new born, be sure to have a new will drawn up if your existing one was not made in contemplation of marriage. Even if the Will has been drafted so as to subsist beyond marriage, it is a good idea to review matters generally to ensure the terms of the Will reflect your wishes.
Preparing for the arrival of a child is invariably a bit of a penny pinching exercise and although you may find yourself tempted to avoid costs by writing your own will, it is always worth leaving it to the professionals. Consulting a specialist lawyer will ensure that your will is drafted properly and that appropriate consideration is given to your specific circumstances when deciding how best to protect your family.
2) Appoint executors and guardians
As well as regulating how your estate should be distributed, a will covers the appointment of executors, trustees and guardians.
Executors are charged with administering the assets in your estate. Trustees are responsible for managing any ongoing trust for the benefit of your child. Although they form different functions, people will often appoint the same persons to act as executors and trustees.
Guardians have legal responsibility for a child’s welfare and day-to-day care. In the event that both you and your partner die while your child is a minor, guardians are the people to whom you will entrust the care of your child.
Whoever you decide to appoint, it is essential that the guardians and trustees are on good terms and are capable of working together harmoniously in the interests of your child. Guardians must be appointed formally by Will or in a separate Deed of Guardianship, although appointment by Will is preferable for practical reasons.
It is a sobering and unimaginable scenario to ponder but one that is imperative to address particularly if you have strong views as, in the absence of a valid appointment, the court will have the final say on who should be appointed.
3) Arrange life insurance
Consider the financial security of your partner and child after your death. How would they manage without you and would they be able to enjoy the standard of living you want them to have? Would there be sufficient assets to pass on to your child?
If this is a concern you may want to consider the benefits of taking out a life insurance policy which pays out either on your death or if you die within a specified period. Where the policy is assigned to a trust, the policy proceeds will generally fall outside your estate and will not therefore attract inheritance tax, so it is a tax efficient way of passing on assets.
Clearly, this is a lot of food for thought. These are highly emotive issues which will provoke some sensitive conversations with your partner and, quite possibly, differences of opinion. These are probably best explored before your bundle of joy arrives and the sleep deprivation begins in earnest.
Ultimately, navigating your way through these discussions and subsequent paperwork is a small price to pay when considering the future of your family’s financial and emotional wellbeing.
Stephanie Brobbey is a Senior Associate in the private client team at Goodman Derrick LLP, the London law firm.
Photo by Olliss