I found that going from single to married didn’t change up my finances much. The only thing we did was open one joint checking account for tax purposes and to symbolize our union. But once my daughter was born, suddenly there was a whole mess of things to consider legally and financially. Below are some of the extra things you will have to worry about upon the birth of your little bundle(s) of joy:
Life Insurance: If you don’t have anyone dependent on you to live (financially I mean), then you don’t need life insurance. But guess what? Kids are almost wholly dependent on you both emotionally and financially. Once you have kids you’ll want to protect them in case you know, you (or your spouse) die in a horrible accident or from cancer. I really hate thinking about death, but I hate the thought of leaving my kids with no financial protection even more. Even though we have some income protection by being a dual income household, most of our benefits come from me. And to preserve their quality of life, they need my income and my husband’s. I’m not going to get into it here, but the best choice for most individuals is to buy term life insurance. Only a select few will benefit from whole life insurance and its variants (i.e. universal life, variable life). But if you do have a special needs child, such as a child with Down Syndrome that would require life-long financial assistance even after you pass, then that would be a good reason to buy whole life insurance.
Will: Did you know that if you don’t specify in writing who gets your kids in the event you and your spouse die, they in essence become wards of the state? If you didn’t know that prepared to be horrified as I was when I realized this. A judge gets to decide who will be the guardian of your minor children when there is no will and both parents die. And while I’m sure they try their very best to look out for your kids’ best interest, why would any parents want to leave that decision to a stranger when they can do something about it by having a will in place. I’m very close to my parents and my mother is like a third parent to our children. Therefore, I used to assume it would be a no-brainer that if something happened to my husband and myself that she and my dad would automatically get guardianship of our kids. Not so. You have to explicitly have it written “Give kids to grandparents on highheeledinvestor’s side.” Cost of drafting a will? Ranges from free to very expensive and differs based on what state you live in. I’ve been strongly considering using an online legal service like Legalzoom.com or Nolo.com. Cost on Legal Zoom is starting at $69. Not bad, but it did say “starting.” But I know it’ll cost me a lot more to use a professional estate planning lawyer to draft one.
Living Trust: So guess what else? It turns out having a will is not enough to protect your kids financially. According to a close friend who happens to be a successful estate planning lawyer, if you own any significant assets you should have a living trust (at least in California) . Excerpt from his email to us.
“If you own any real property in California, it’s probably a good idea to have a living trust. In California, the most efficient way to transfer assets upon death or to designate someone to manage assets for you if you’re incapacitated is through a living trust. Without a living trust, there’s a big possibility you’ll need a court proceeding (probate or a conservatorship) to accomplish those two respective goals.
Wills, unlike living trusts, are subject to probate in California. The rule of thumb for probate is that if you have over $150,000 in assets, a probate will be necessary to transfer assets on death. For purposes of calculating the $150,000 threshold, encumbrances are not taken into account in valuing an asset. Therefore, even if you have only say $100,000 in equity in a $300,000 home, it’s the entire $300,000 value of the home that’s used for determining whether the home needs to be probated if the owners pass away.
Although jointly owning assets can avoid probate, you can’t add <<insert your child’s name>>, as a minor to the title to your home or any of your accounts. And joint ownership does not address the issue of an owner becoming incapacitated.
When our office does an estate plan for a family, it usually starts at $1200 and goes up depending on how complex the case is (e.g., wacky distribution schemes, multiple pieces of real property to transfer to the trust, etc.).“
He’s being nice by saying it starts at $1200. I shopped around a bit and contacted several lawyers in Los Angeles and non-lawyers about creating a living trust. Lawyers gave me quotes of $3000-$4000. Non-lawyers charge $1300. Not to mention you have to pay each time you revise a living trust. You could consider a DIY approach again by using an online legal site. Living Trusts start at $249 on Legalzoom and woah $59.99 on Nolo. Not sure though if your living trust is where you want to go cheap. You can also create a living trust and/or will on Legalzoom or Nolo and then take it to a lawyer or paralegal to review. This is another way to save on the costs.
Saving For College: The cost of attending college is skyrocketing. When I went to my 4 year in-state public university it cost me a measly ~$30,000 for tuition, board and fees. The same school is projected to cost my kids ~$240,000. Each. If you don’t want little Madison or Ethan coming out $240,000 in debt, start saving and open a 529 account. There are several ways to save for college that I’ll cover in another post, but for those of us in the higher income tax bracket (federal 28% and above) a 529 will probably best serve your college saving needs.
Earthquake/Emergency Kit: I just threw this one in here for fun and as a public service announcement. I never had a single emergency kit ready when I was single or when I got married. But after the birth of my first child, I started to worry about every catastrophe imaginable. Earthquakes, fires, tsunamis.
That last one’s a stretch but hey we live in a coastal city, it could happen. Turns out buying a 2 person, 7 day emergency kit costs $180. Not to mention I need two of those since we’re a family of 4. Total cost: $360.
On a side note, there’s a whole plethora of survival gear on Amazon and at Costco. Did you know you can buy a 4 person, 1 year food supply from Costco for $4000? I guess a lot of people are into preparing for doomsday and what not.
So there you go, all the extra financial things you’ll have to worry about after you have kids. I know it seems overwhelming, but trust me, it’s all worth it. If you’re already a parent you know what I mean.