Estate Planning for When ‘Baby Oops’ Comes Along

A happy baby sits in on open kitchen drawer.

(Image credit: Getty Images)

You’re likely all too familiar with the concept. Most families have children with fairly narrow age gaps. The median age gap between children is just 24 to 29 months. But every now and then, after it seems apparent to everyone — including the parents — that the family is fully formed, along comes Baby Oops 10 years later, and two kids becomes three as everyone rejoices.

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Parents and grandparents should be mindful amid the pomp and circumstance of the new baby’s arrival, however. There are important estate planning considerations attached to having a child roughly a decade younger than their siblings. Throughout Baby Oops’ childhood, they’ll be at a substantially different stage of life than other siblings and will likely have different needs as a result.

For anyone who finds themselves or their adult children in this situation, here’s a short checklist of what you need to keep in mind:

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1. Make sure you update your beneficiary designations.

Unlike your last will and testament, which often does take into account the possibility of there being future children on the horizon, your beneficiary designations may not offer the same convenience. Take your life insurance policy, for example. Your life insurance policy isn’t a probate asset, so it’s not covered by your will. Let’s say you’ve left the proceeds of your life insurance policy to each of your first two children by designating them as your beneficiaries: Your will might automatically account for Baby Oops, but your life insurance policy won’t.

You’d be surprised how often this becomes a problem, and it’s what people overlook the most, based on my experience. Make sure not to accidentally forget to add Baby Oops to your life insurance policy or any other non-probate assets.

2. Think about updating guardians for your children in your will.

It’s one thing to designate the grandparents as the guardians for your 9- and 10-year-olds in case anything happens to you. Kids are fairly independent by this age, and any parent knows that caring for a fifth grader is very different than taking care of a baby. For making sure children are doing their homework and getting to soccer practice, grandparents may be appropriate guardians.

However, for constantly running around and even rolling on the floor to play with a baby and change diapers, grandparents may not be ideal guardians, while a sibling might be. This is one of the most significant areas of the age gap having an effect.

3. Have another look at all of your fiduciary appointments.

Sure, usually when you hear the word “fiduciary,” you probably think first of a financial adviser. In this instance, we’re referring to your executor, your trustee — all of the people you name to carry out your various estate planning wishes.

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Now, maybe you’ve given that designation to your 16- or 17-year-old, provided they’ve reached the age of 18 when the time comes. With Baby Oops, maybe you also want to appoint them when they attain the age of 18. This way, all of your children — once they’ve become adults — can work together as your fiduciaries. To do this, you’ll want to update your appointments so that Baby Oops can be part of the process.

4. Consider a pot trust to ensure fairness for your children.

If you have older children, you’ve probably paid for many of their expenses already, while Baby Oops didn’t have the benefit of receiving many of the same things you paid for. That’s where a pot trust comes in. It’s basically a pot of funds for all of your named beneficiaries, managed by a trustee, where the trustee has the power to determine how assets are distributed.

This allows for desired complexity when slicing up the pie equally after you’re gone might not actually be the fairest method of doing things.

Takeaway

Having an unexpected, late addition to your happy family is a source of joy that is in so many ways a gift. But with enough of an age gap between children, there will be half a generation between your oldest and youngest. In the event that you pass away or become incapacitated, the youngest child’s needs will be very different.

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So if Baby Oops does come along for you or someone close to you, don’t forget to have a close look at your estate planning documents to make sure everything is exactly as you wish it to be.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Allison L. Lee is the Attorney-at-Law, Director Trusts & Estate Content for FreeWill, a mission-based public benefit corporation that partners with nonprofits to provide a simple, intuitive and efficient online self-help platform to create wills and other estate planning documents free of cost. Through its work democratizing access to these tools, FreeWill has helped raise billions for charity. Prior to joining FreeWill, Allison spent more than a decade in private practice.