Beyond the joy brought to parents from having or adopting a child, this is a huge financial transition in their lives. There are a number of issues to consider including how the costs of caring for a child will impact both their short-term cash flow and their long-term saving and wealth-building objectives.
In this checklist, we cover a number of financial issues that your clients need to consider when having or adopting a child including:
- Cash flow issues that your clients need to consider including the additional costs to their budget involved with raising a child. If one of the parents decides to be a stay-at-home parent, how does the loss of income impact their short and long-term financial picture? They should check to see if either employer offers any sort of assistance such as childcare subsidies or extended paternity leave.
- If they receive any cash gifts on behalf of their child, its wise for the parents to consider funding a 529 plan to help with college savings. They will also want to see if they can increase their funding to an HSA if they have one to cover increased medical costs on a tax-efficient basis.
- Your clients will want to ensure that they notify their health insurance provider in a timely fashion to ensure that the new child is fully covered. In selecting a pediatrician for the child, they will want to consider whether the doctor is part of their provider’s network.
- It’s key for your clients to ensure they have adequate life insurance coverage in light of the addition of the new family member.
- Your clients will want to review their tax situation to ensure they take advantage of any tax credits relating to the child and any dependent care that they may be entitled to. If the child was adopted, they may be entitled to a tax credit related to that as well.
- Having or adopting a child is a good time for parents to start doing some long-term planning issues around areas like saving for college or perhaps a child’s wedding. Estate planning issues such as a will and updating beneficiary designations should be front and center as well.
This is a comprehensive checklist of the types of issues that advisors should be discussing with their clients surrounding the birth or adoption of a new child. Clients are not always fully aware of all of the financial ramifications of this joyous addition to their lives, it is your job as their advisor to ensure they are equipped to deal with these issues, allowing them to enjoy their growing family to its fullest.