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What Issues Should I Consider When Having Or Adopting A Child?

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:

  • Our clients will want to review their cash flow and update their budget to include 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 their employer offers any sort of assistance, such as childcare subsidies or extended paternity leave.

  • If our clients receive any cash gifts on behalf of their child, it’s 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.

  • Our clients will want to 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 our clients to review and update life insurance coverage in light of the addition of a new family member.

  • Our clients will want to review their tax situation to ensure they take advantage of any tax credits that they may be entitled to relating to the child and any dependent care. 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 around areas like saving for college or perhaps a child’s wedding. Estate planning issues such as updating Wills, Trusts, beneficiary designations, etc. 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 role as their advisor to ensure they are equipped to deal with these issues, enabling them to enjoy their growing family to its fullest.

Transcript:


Hi, Todd Pouliot, Gateway Financial. Again, visit us at www.mygatewaymoney.com. I have a video today of a checklist that obviously I feel very personal about, as many of the checklists I do. But as an adoptive dad, I felt that it was important that we have a checklist for people who are becoming new parents. So, this video obviously, is entitled about having a child or adopting a child but there are so many things to consider when those things are going to happen whether or not they're planned or unplanned. So, beyond the joy that the parents get from bringing a child home or adopting a child, it's a huge financial transition in your life. There are a number of things to consider for the cost of caring for that child and it will impact both short-term cash flow and long-term savings and your wealth-building objectives. Boy, don't I know that. So, in this checklist, we're going to cover several major areas. So, first areas we want to review our client’s cash flow and update their budget. We want to include the additional cost involved with raising a child. And, if one of the parents decides to stay home, how does the loss of that income impact short-term and long-term financial picture? They should check their employer's offers for that type of assistance, such as childcare subsidies or an extended paternity leave. The second area I'd like to cover is cash gifts that are received on behalf of your child. Look at – consider funding that 529 to help with some college savings. Also want to see if you can increase your funding to your HSA. I talk about HSAs a lot on this YouTube channel. I talk about it a lot with our clients in person and in Zoom meetings. But we also want to look at the covered increased medical costs and doing that on a tax-efficient basis is very important. The third thing is, our clients need to notify their health insurance provider in a timely fashion to make sure that the new child is fully covered. And also, by selecting a pediatrician for your child you want to consider whether the doctor is part of your provider network. Another key is for our clients to review and update their life insurance coverage in light of the addition of a new family member. Are there certain risks that you're taking on or possibly even insuring the child at a young age? Great tax planning situation there. And, you want to review that tax situation. Take advantage of any tax credit that may be related to the child's dependent care. If the child was adopted, again, they may be entitled to a tax credit related to that as well. And finally, having or adopting a child is, you know, a good time for your parents right now and a really good time to do some long-term planning around those areas such as college Planning and wedding and estate planning issues. Updating your wills, your trust, your beneficiary designations – all those things should come front and center as well. And, there's no time like the present to do that because the longer you put that off, the more and more we see get put off. I want to build that momentum as we're going through the process. So, as I normally do, I will share my screen with you. And here we are, let's see, the cash flow issues. Do you need assistance determining how much it costs to raise your child? Do you need help with your new budget? Will you and your partner take maternity leave? Consider how that's going to impact your cash flow and your savings. Do you or your partner plan to stay home to raise the children? Again that's a cash flow issue. But again, also look at your employer benefits such as health and life insurance – the impact that will have if one of you does stay home to raise the child. Professional child care services to support your family. Do you need to check if your employer offers any benefits such as adoption expense reimbursements, child care subsidies, maternity and paternity leave? And, beyond what you have saved, do you need additional cash to cover any costs having – relating to the adoption of the child or just having a child? So, consider taking a distribution of up to five thousand dollars from an eligible retirement plan within one year of having or finalizing the adoption of a child. I just wanted to maybe make that personal note here about how expensive it was and a lot – in fact that law wasn't even available to us back then when we were adopting our child. Not only did we have to pay the adoption agency, and all the legal fees, we ended up paying even medical fees for the birth month and that was very important you know to make sure that we had enough cash flow around for that. So, there have been some changes to make sure you take advantage of those cash flow issues that might be available. Asset and debt issues. If you receive cash gifts, consider the UGMA or UTMA and possibly a 529 account. Wonderful assets to use. They're very easy to set up and just make sure you understand the rules relating to those – age of maturity for the state with which you're in and not possibly overfunding that 529. Remember not just parents can own the 529 – Aunts, Uncles, and grandparents can all own 529s. Any dependent care flexible spending accounts. This was wonderful for us year after year after year to take advantage of an FSA for that dependent care and the HSA. If I can't talk to you enough about an HSA. These are absolutely amazing tools again 7,300 for a family in 2022 and again if you're over 55, you get that catch-up contribution. Also make sure you can go see the flow chart, “Can I Make A Deductible Contribution To My HSA?” I love that we have a CPA here in our office to do our tax preparation but this is tax planning and it's just that is a number one getting that HSA up and running for your family. Insurance. Again the health insurance policy generally 30 to 60 days, to find a doctor and pediatrician in your network. And, do you ever need to review the life insurance? Maybe increasing the amount of coverage you carry now that you have a child that you need to make sure you're aware of, such as college costs or other future expenses that may come into play. You know, if you have a stay-at-home spouse or a working spouse – dual income, you know, what is the other surviving spouse going to do? Are they going to have to quit their job or are you going to have to hire out some significant care? Tax planning. Again, I said tax planning earlier but I'm going to come back to it again. Is your modified adjusted gross income below 200,000 or 400,000? The full child care tax credit. Again, there's been a lot of things going on with the pandemic and how those credits have worked in the past, but make sure you understand how those work in the future. And, dependent care expenses. So, make sure you understand the dependent care tax credit. Again, there are some phase-outs in that. When we do our tax planning, we take our client’s 1040, upload it in some software, and we can show you where you lie. Whether or not you're above or below or in the middle of that phase-out. Again, modified adjusted gross income. Again, that is so different and maybe we should pause there. A lot of people don't know what their modified adjusted gross income is – they just look at that AGI adjusted gross income. So, if it's below that 263,410 and you did adopt a child, you may be eligible for the adoption tax credit and that's up to nearly fifteen thousand dollars. Again, there's some phase-out. Boy, I really wish they would have had that enacted when we were adopting but we went ahead with the process anyways because she's priceless. And, update how much is withheld from your paycheck. Look at your W-4, does that need to be updated? Long-term planning issues. What about education for your child? Nobody knows the future. We don't know what the plan is for that child. We don't have life all put together. But, the “What Issue Should I Consider To Fund My Child's College Education?” checklist is a great checklist that we have for you. And, start saving for future expenses for your child. Automobile. I know mine's starting to chirp away how many days she has left until she's allowed to get her license. What about a future wedding or other types of expenses that you may not have that are typical automobile or wedding expenses? Again, the estate plan. Please update your estate plan. So many times life gets busy. We want to look at possibly creating a trust, appointing trustees to protect your children, and managing their assets during the time of their minority and beyond. And then, update your designations, you know, primary and contingent need to be updated. A lot of times, and it's horrible, you hear these car accidents and it's both spouses are in the vehicle. What happens to those children? So, those benefits are for not only primary but contingent beneficiaries. And also, appoint a guardian for your child if something were to happen to you and your partner while they're still minor children. And again, there are some state-specific issues that we won't get into. But, we're going to send out this checklist to anyone who's planning on having a child or adopting a child. There are a lot of wonderful humans out there that need a home. We are so blessed and lucky that we were fortunate enough to have the child locally born and just the right opportunity at the right time came for us and I hope that happens for you if you're planning on adopting or having a child. Thank you to the people who give us those thumbs up. Thank you to the ones who subscribe to our channel. And, we just wish you well and have a wonderful day, bye.

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