Your Child’s Financial Future

Statistically speaking, you are very likely to be around long enough to rear your child to adulthood. Still, life sometimes takes unexpected turns. So you are right to want to make plans for your child in case you are not able to see him through.

You can make two important determinations by executing a written will: establishing who will take care of your child and making sure that whatever worldly goods you have are left for his benefit. If you fail to make a will, and therefore die intestate, a judge will decide, based on state law, who will become the guardian of your child and who will inherit your property. The legal requirements for writing wills differ from state to state and can be tricky, so you should seek out an attorney to draft your will. If you cannot afford to hire an attorney, you should be able to get assistance through your local legal aid services.

Your child cannot own financial assets directly until he reaches the age of majority, which is 18 in most states. However, through your will, you can leave funds to support him in the care of a trustee. The trustee’s responsibility would be to safeguard and manage your assets on behalf of your son and would make funds from the trust available to him through the guardian according to the guidelines you establish. These guidelines can leave full discretion to the trustee, or you can make specific instructions (so long as the funds are adequate to meet them). You can make the trustee and the guardian the same person or not, as you wish. If you have substantial assets, for instance if you own your home, you may want to consider naming a bank or other professional manager as trustee, and you may want to extend the trust’s control past your son’s 18th birthday. That way you can be sure that he won’t spend his college tuition on a Porsche.

As to a guardian, it will take some careful consideration on your part to decide to whom you would give this responsibility. You may want to ask them directly if they are willing to take on the task. Some factors that you will want to take into account are how well the values of the guardian match your own, their age and health, whether a geographic move would be required of your son, and how he would fit into the guardian’s family. You can do your son a great favor by bringing the guardian’s family into your extended family (if not already a part), perhaps by including them in holiday and birthday celebrations and family vacations. You and your son will enjoy being part of a larger family, and if it ever becomes necessary, he will move more easily into his new family.

If, like most people, your current financial resources are not adequate to cover your son’s needs until he is grown, you should consider purchasing life insurance on your life. The least expensive form of life insurance is term insurance, which has no cash buildup but guarantees a full death benefit if you die within a certain period of time. You may be able to buy a group policy through your employer at a low rate, or you may even find a less expensive individual policy for a female at your (young) age. In your case, a ten-year policy should be adequate, and you may be surprised to find that coverage sufficient for food, clothing, recreation and even college tuition is quite affordable.

For people of working age, the likelihood of becoming disabled is much higher than the likelihood of dying, so you also need to consider how you will continue to provide for your son if you are injured or sick and not able to work for an extended period. Your employer may provide some protection under a group disability insurance policy, and you probably have some protection, but only for complete and permanent disability, under Social Security. You also have protection under Worker’s Compensation if you are disabled as a result of an injury on the job. You should get the details from your employer. Unfortunately, private disability insurance is limited and very expensive. (Insurers have to guard against setting up the temptation to fake a disability). If your resources are limited, the best you may be able to afford is a policy that replaces part of your income only when a disability resulting from injury becomes long-term (for example, after three months or more). It is important , therefore, for you to do the best you can to set aside an emegency reserve for lessextended illnesses that nevertheless limit your work time and therefore reduce your income. You should try to bank three to six months’ living expenses to tide you over an illness, injury or job loss. While it may seem daunting at first, if you set this goal and give it the priority it deserves, you will be able to build up a comfortable cushion that you will be thankful for if and when the need arises. You can also protect yourself by being careful with your sick leave. As a single parent you are no doubt tempted to use your sick leave for personal catch up days or to stay with your child when he is sick. Of course, there will be times when using your leave is appropriate, but remind yourself that you may have a greater need down the road.

No one can foresee the future or prepare for all possible contingencies, but if you take these few precautions, you will gain some peace of mind knowing you have done right by your only child.