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MDRT INSIGHTS

A Financial Plan for an Expanding Family

Financial advisors are constantly helping others plan for many of the important events in their lives, including marriage, children, retirement and leaving a legacy for their family. But what happens when they themselves have to enter these stages of planning?

I recently had that moment myself with the birth of my daughter. The moment they let us take her home from the hospital without a nurse to guide us was when we realized the newfound personal and financial responsibility that a child brings! When I entered the stage of family financial planning, I learned a lot of personal steps to help secure our financial future.

Here are the most important financial items for clients to evaluate when they are getting ready to expand a family:

» Create a will and contingent trust. This is one of the most important first steps. Choosing a guardian for the children helps make sure they are raised by someone whom the parents think will share the same family values. Setting up a contingent trust helps ensure that the money your client’s child receives is distributed according to your client’s specific wishes, instead of the child having complete control the minute he or she 18.

» Update beneficiary forms. Make sure to double check and update all retirement plans and insurance policies to be sure nothing falls through the cracks. Many accounts with beneficiary designations never pass through a personal will, so it is important that these are also updated.

» Begin saving for college. There are various saving plan options available. At this step, it is important for your client to consult a tax advisor to determine what is best suited for their family’s financial situation. I personally opened a 529 plan. The money in this plan can be used at almost any accredited higher education institution in the world.

» Purchase life insurance. If your client already has life insurance, he may want to consider increasing the amount. Now that your client has children as beneficiaries, you want to be sure his family is put in a positive financial situation should anything happen.

» Buy disability insurance. At a young age, future earning potential is the biggest asset. However, as we age it becomes increasingly important to consider disability insurance to comfortably cover income if illness or injury prevents us from working. A disability lasting longer than three months is very common and can be debilitating to family financials.

» Consider a small whole life insurance policy. This accumulates tax-free savings and has a guaranteed purchase option. This option allows children to purchase additional insurance when they are adults, regardless of their health at that time.

» Look into a dependent care flexible savings account. Many companies have these plans in place, and they are a way to pay for certain child care costs with tax-free money. It is a “use it or lose it” design, so your client should be sure he will be spending at least the amount he elected to have withheld each month.

One main focus for financial advisors is to help families preserve wealth through multiple generations. These are some of the first steps for your clients to take when they have a child to make sure they are on the right track for their family’s financial health. It may also be beneficial to create a checklist for each specific stage of planning and life.

Matthew T. Hoesly, CFP, ChFC, MSFS, is a financial advisor with Resource 1 in Norfolk, Va. Matt qualified for MDRT for the first time in 2008 and has achieved Court of the Table twice. Matt may be contacted at [email protected] .