Starting a family can be both exciting and expensive. How can first-time parents prepare? Mindi Banach, Tax and Estate Planner, TD Wealth, joins Kim Parlee to talk about the importance of creating a comprehensive and flexible budget, and why it can be beneficial to draft a will or update your current one before your child arrives.
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* Starting a family is an exciting thing, but also a bit expensive. It can cost hundreds of thousands of dollars to raise a child until the age of 17. Beyond the cost, there are other things to think about, as well, to ensure your child's future is secure. Mindi Banach is Tax and Estate Planner at TD Wealth, joins me now with some ideas to help first-time parents prepare for this new phase. And, boy, is there a lot to prepare for. Nice to see you.
* Nice to see you as well.
* Let's start-- let's just jump right into it. What are some of the things that first-time parents should do to prepare themselves financially?
* So before your child arrives, it's really when you want to lay the groundwork for your financial preparation. So what does that mean? You want to ensure that you can handle your finances both from the immediate expenses that you're going to incur as well as the future expenses you're going to incur.
- So the first thing that you want to do is you want to create a comprehensive budget. You want to incorporate those new baby-related expenses that you're going to incur-- the diapers, the baby clothing, the baby gear-- as well as the ongoing and future expenses that you're going to have-- the child care costs, the extracurricular activities, potential private school tuition. You want to incorporate all that into your overall financial plan that should already include your existing plan that has paying down your mortgage, saving for your own retirement.
- Incorporate all that so that your savings and spendings align with your financial goals, both from the immediate perspective as well as the long-term perspective. You also want to build and boost your emergency savings funds. This is going to be a lifesaver to have those extra funds when you're dealing with the unpredictability of the costs related to a new baby. As well before your child arrives, maybe you have a little bit more time to do the proper research on the parental leave that is out there and available, both from the government as well as from your employer.
- So you want to research government benefits like CCB (Canada Child Benefit) as well as the tax credits. You also want to research parental and maternity leave, understand the length of leave that you are eligible for, as well as the income that you are eligible for. And you also want to research RESPs-- Registered Education Savings Plans. You can't set it up before your child is born, but you want to plan ahead in terms of understanding the options available as well as which financial institution you're going to set it up at, so that when the time comes and you can set it up, you can start contributing for your children's education as soon as possible.
* OK. So that is great. Let's assume we did all that. I don't know if I did, but let's assume. Child is born, then what?
* So after you've done your research about all the parental leave options and government benefits you're eligible for, now you actually want to register for them so that you can start receiving that income support. Again, similarly, after researching the RESP, now, after you receive your child's Social Insurance Number, you can actually set up the RESP and take advantage of those educational savings for your child, as well as you want to update that budget.
- Now that you know what the costs are of those child-related expenses, you want to update that budget. And you want to finalize your child care arrangements and integrate those new expenses into your family budget as well.
* And don't underestimate that last one. OK, let's talk about legal, financial documents, those types of things. Why is it important to address these before the child is born?
* I always tell new parents that before your child is born is really the opportunity that you want to take the time to go and draft and/or update your documents. You know, life is unpredictable and unexpected. And when you have a new baby, there are so many stresses that come along with a new baby that I often tell parents, immediately after your child is born, it might not be top of mind to go and draft your documents and your estate planning documents.
- Likely, the first thing on your list is going to be to keep that baby alive. Yes, updating your estate planning documents may be on the list, but it may not be top of mind. And to give yourself peace of mind, it's a good opportunity to think about this before your child comes.
- Now, I recognize that for many parents, they don't know the number of children they're going to have or the names of their children. You can absolutely still draft your will today, because it's quite common that when you draft your will, you want to draft it in a way where it's going to leave the class of beneficiaries open. And what do I mean by that?
- Instead of specifically naming specific children, instead you state that you want to leave your assets to my children. This incorporates flexibility into your estate plan so that you provide for all of your children, regardless of when they arrive, both current as well as future, into your estate plan. Another suggestion-- I tend to find that a lot of parents-- sometimes if they disagree about who to name as the guardian for their children, they tend not to sign their will, and they push off the signing.
- And I always recommend, parents, sign your will as soon as possible, and don't necessarily include the guardianship provision. Later on, assuming you still have capacity, you can always update your will to include that provision. But it's best to sign your will as soon as possible. Don't push it off.
- And one last suggestion is that when you're going through the process of updating your will, it's a good opportunity to also look into making certain that your beneficiary designations for your registered accounts-- so your RRSPs, your TFSAs, your RRIF accounts-- are up to date and current. And if you do want to have any minor children be the beneficiaries of those accounts, I suggest not naming those minors directly as the beneficiary. Rather, instead, consult with your lawyer about the proper trust language that's likely going to be necessary, because, typically, minors are unable to inherit large sums of money without a trust being put in place.
* Got it. Very good things in there. What about strategies for managing the cost of child care?
* Yes, the cost is sometimes quite high and unexpected for parents. So there are a couple of strategies to think about. One, you want to research the different types of child care options available to you, understand the costs of the different cares available, understand the different standards of care, and then choose the right option for you as well as for your budget.
- You also want to ensure that you're taking advantage of all the provincial as well as federal subsidies that are available. You also want to incorporate flexibility into your budget, because the reality is that child care options may fluctuate over time. You know, you change your mind, and so you want to ensure that your plan can fluctuate and change over time, as well as talk to your employer and see what type of employer-related benefits that they also provide.
* It's interesting, too, because I hear all these things-- and I'm sure people are listening and frantically writing things down or getting ready to rewind and watch again-- but some of this really depends on their own personal situation. You really need to talk to professionals to help you figure out what of these makes sense for you.
* Yeah. And there are a number of professionals that you can speak with. A financial planner is going to help guide you in terms of that financial plan and that budget and get you right on track with those new expenses. An estate planning lawyer is going to guide you about your wills, the trust language, the guardianship provisions. A tax professional like an accountant can help you with those tax credits. And lastly, if your employer has an HR consultant, or benefit, or whatever they want to call it, can help you with those employer-related benefits that you may or may not be eligible for.
[MUSIC PLAYING]
* Nice to see you as well.
* Let's start-- let's just jump right into it. What are some of the things that first-time parents should do to prepare themselves financially?
* So before your child arrives, it's really when you want to lay the groundwork for your financial preparation. So what does that mean? You want to ensure that you can handle your finances both from the immediate expenses that you're going to incur as well as the future expenses you're going to incur.
- So the first thing that you want to do is you want to create a comprehensive budget. You want to incorporate those new baby-related expenses that you're going to incur-- the diapers, the baby clothing, the baby gear-- as well as the ongoing and future expenses that you're going to have-- the child care costs, the extracurricular activities, potential private school tuition. You want to incorporate all that into your overall financial plan that should already include your existing plan that has paying down your mortgage, saving for your own retirement.
- Incorporate all that so that your savings and spendings align with your financial goals, both from the immediate perspective as well as the long-term perspective. You also want to build and boost your emergency savings funds. This is going to be a lifesaver to have those extra funds when you're dealing with the unpredictability of the costs related to a new baby. As well before your child arrives, maybe you have a little bit more time to do the proper research on the parental leave that is out there and available, both from the government as well as from your employer.
- So you want to research government benefits like CCB (Canada Child Benefit) as well as the tax credits. You also want to research parental and maternity leave, understand the length of leave that you are eligible for, as well as the income that you are eligible for. And you also want to research RESPs-- Registered Education Savings Plans. You can't set it up before your child is born, but you want to plan ahead in terms of understanding the options available as well as which financial institution you're going to set it up at, so that when the time comes and you can set it up, you can start contributing for your children's education as soon as possible.
* OK. So that is great. Let's assume we did all that. I don't know if I did, but let's assume. Child is born, then what?
* So after you've done your research about all the parental leave options and government benefits you're eligible for, now you actually want to register for them so that you can start receiving that income support. Again, similarly, after researching the RESP, now, after you receive your child's Social Insurance Number, you can actually set up the RESP and take advantage of those educational savings for your child, as well as you want to update that budget.
- Now that you know what the costs are of those child-related expenses, you want to update that budget. And you want to finalize your child care arrangements and integrate those new expenses into your family budget as well.
* And don't underestimate that last one. OK, let's talk about legal, financial documents, those types of things. Why is it important to address these before the child is born?
* I always tell new parents that before your child is born is really the opportunity that you want to take the time to go and draft and/or update your documents. You know, life is unpredictable and unexpected. And when you have a new baby, there are so many stresses that come along with a new baby that I often tell parents, immediately after your child is born, it might not be top of mind to go and draft your documents and your estate planning documents.
- Likely, the first thing on your list is going to be to keep that baby alive. Yes, updating your estate planning documents may be on the list, but it may not be top of mind. And to give yourself peace of mind, it's a good opportunity to think about this before your child comes.
- Now, I recognize that for many parents, they don't know the number of children they're going to have or the names of their children. You can absolutely still draft your will today, because it's quite common that when you draft your will, you want to draft it in a way where it's going to leave the class of beneficiaries open. And what do I mean by that?
- Instead of specifically naming specific children, instead you state that you want to leave your assets to my children. This incorporates flexibility into your estate plan so that you provide for all of your children, regardless of when they arrive, both current as well as future, into your estate plan. Another suggestion-- I tend to find that a lot of parents-- sometimes if they disagree about who to name as the guardian for their children, they tend not to sign their will, and they push off the signing.
- And I always recommend, parents, sign your will as soon as possible, and don't necessarily include the guardianship provision. Later on, assuming you still have capacity, you can always update your will to include that provision. But it's best to sign your will as soon as possible. Don't push it off.
- And one last suggestion is that when you're going through the process of updating your will, it's a good opportunity to also look into making certain that your beneficiary designations for your registered accounts-- so your RRSPs, your TFSAs, your RRIF accounts-- are up to date and current. And if you do want to have any minor children be the beneficiaries of those accounts, I suggest not naming those minors directly as the beneficiary. Rather, instead, consult with your lawyer about the proper trust language that's likely going to be necessary, because, typically, minors are unable to inherit large sums of money without a trust being put in place.
* Got it. Very good things in there. What about strategies for managing the cost of child care?
* Yes, the cost is sometimes quite high and unexpected for parents. So there are a couple of strategies to think about. One, you want to research the different types of child care options available to you, understand the costs of the different cares available, understand the different standards of care, and then choose the right option for you as well as for your budget.
- You also want to ensure that you're taking advantage of all the provincial as well as federal subsidies that are available. You also want to incorporate flexibility into your budget, because the reality is that child care options may fluctuate over time. You know, you change your mind, and so you want to ensure that your plan can fluctuate and change over time, as well as talk to your employer and see what type of employer-related benefits that they also provide.
* It's interesting, too, because I hear all these things-- and I'm sure people are listening and frantically writing things down or getting ready to rewind and watch again-- but some of this really depends on their own personal situation. You really need to talk to professionals to help you figure out what of these makes sense for you.
* Yeah. And there are a number of professionals that you can speak with. A financial planner is going to help guide you in terms of that financial plan and that budget and get you right on track with those new expenses. An estate planning lawyer is going to guide you about your wills, the trust language, the guardianship provisions. A tax professional like an accountant can help you with those tax credits. And lastly, if your employer has an HR consultant, or benefit, or whatever they want to call it, can help you with those employer-related benefits that you may or may not be eligible for.
[MUSIC PLAYING]