New Baby

How should you prepare financially for little ones joining the family?

6 Financial Tips for a Growing Family

Whether you’re expecting a baby, preparing for adoption, or already busy with children at home, you have a lot to do. With all of the daily demands that a parent has to deal with, it’s easy to overlook or postpone dealing with the financial aspects of a growing family.

Here are six tips to consider. It makes sense to get started on these items as soon as possible. If you wait, it will be more difficult to find the time.

Tip 1: Prepare and update important documents

Parents instinctively want to provide security for their child. That means thinking about estate planning strategies. Things to consider include:

Creating a will or revocable trust

An infographic that says Start planning early. 1.Update documents 2. Review insurance 3. Get a social security number 4. Create a budget 5. Start education fund 6. Tax benefits

A will not only provides instructions for distributing property you own (in your name alone) through the probate process after your death, it’s also the only way to specify who would be the guardian for your children if both parents die.

A revocable living trust is an alternative way to distribute property while avoiding the probate process. It also lets you provide for continued management of trust property during your lifetime if you are incapacitated.

Wills and trusts can be simple or include complex provisions. Your attorney can help you determine whether a will or revocable trust is appropriate for you and design a document that fits your needs and objectives.

Consider a trust for children

If you die and leave assets to a minor child, those funds would end up in a guardianship proceeding supervised by a probate court. Upon reaching the age of majority (18 in most states), all of those assets would be distributed outright. Creating a trust for children is a better approach. If you should die while your children are young, a trust can provide a mechanism for managing assets, income, and expenses until children are old enough to take on these responsibilities. You can specify that assets will stay in trust until a child reaches a particular age, and you can choose a trustworthy person to manage assets and provide necessary income for a child’s care. Your attorney can help you design a trust that is appropriate for your particular family situation.

Executing a power of attorney

A durable power of attorney is a legal document in which you give someone authority to make financial and legal decisions on your behalf. It is important to designate a trusted person who could make important decisions if you experience a serious illness or accident or are unable to effectively manage financial and legal matters on your own for any reason. Even a temporary period of incapacity can create serious difficulty for a young family, so having this document in place is important for any parent.

Setting up a durable power of attorney for health care

A power of attorney for health care authorizes someone to make medical decisions for you in the event you are unable to do so yourself. This document, along with a living will, can be invaluable – it allows you to specify what care you want (or do not want) and choose the person who will speak on your behalf. It’s also helpful for avoiding family conflicts and possible court intervention if you cannot make your own health care decisions.

Preparing a living will

A “living will” is often included in the same document as a power of attorney for health care (although sometimes it is a separate document). A living will explains your intentions about the use of life-sustaining measures in the event of a terminal illness. It expresses what you want but does not give anyone the authority to speak for you.

Tip 2: Review your insurance needs

Insurance can play a major role in your lives when you have a growing family. Here are some ideas about how insurance can help to mitigate some of the most serious risks families face:

Review your health insurance coverage

Insurance can play a major role in your lives when you have a growing family.

If you’re welcoming a new child to your family, talk with your health plan administrator about the effective date of coverage upon birth or adoption. For pregnancy and delivery, review what is covered and what expenses you would be responsible for.

Children will need regular checkups, vaccinations, and care during illnesses. Take some time to understand the maximum amounts you could be responsible for through copays and coinsurance.

Look at life insurance

How will your child be provided for if one or both parents die? Life insurance can help replace income that would be lost if a parent dies unexpectedly.

Consider long-term disability insurance

The chance you’ll become disabled during your working years is much greater than the probability of you dying during that time. To protect your family, consider how you will replace your income if you’re unable to work because of an illness, injury, or disability.

There are private companies that offer supplemental coverage in addition to what your employer may provide.

Update beneficiary designations

Talk with your attorney about your primary and contingent beneficiary designation on insurance policies or other accounts with a beneficiary designation (such as IRAs, annuities, and employee benefit plans). Make sure they’re in line with your overall estate plan.

Tip 3: Apply for a Social Security number

A Social Security number will be needed to open a savings or investment account in your child’s name.

Your child’s Social Security number will be needed to:

  • Receive ongoing health insurance coverage. Contact your health plan administrator to find out if you are required to provide one within a specific time frame to maintain coverage for your child.
  • Obtain child-related tax benefits when filing your federal income tax return. Overlooking this step could mean a higher tax bill.
  • Open a savings or investment account in your child’s name. Many hospitals have a process to help you to apply for your child’s Social Security number. Waiting a couple months requires more documentation, and it may take longer to complete the process. Visit to learn more.

Tip 4: Create a new budget

Take a look at your budget to figure out ways to pay for all the new expenses that come with having a baby or adopting a child. Planning ahead and adjusting your budget early can help you stay in control. You’ll need to factor in:

  • Child care costs (if necessary)
  • Medical costs
  • Food
  • Diapers
  • Clothing
  • Other accessories and necessities

Tip 5: Start an education fund

College may seem far away, but kids grow up fast, and the cost of college continues to increase. If you put just $50 a month into an account at a hypothetical 8% annual rate of return, in 18 years you would have more than $24,000. You can always increase your savings along the way if your financial position changes.

There are a variety of different ways to save for education. Your financial advisor can work with you and your tax advisor to determine which one best suits your situation.

Tip 6: Take note of tax benefits

One added bonus to having a child is the many tax benefits you may be eligible to claim. Some are in the form of deductions reducing your taxable income while others are credits directly reducing your taxes.


One added bonus to having a child is the many tax benefits you may be eligible to claim.

If your employer’s benefit plan includes a Flexible Spending Account, you can allocate a portion of your pretax wages to the account, which reduces your taxable income. You can use the account for either paying qualified dependent care expenses (like daycare costs) or for qualified medical expenses.

When deciding how much to contribute to a Flexible Spending Account, keep in mind that some employers may allow you to rollover a limited amount of an unused portion to the following year’s account balance. However, in many cases, any unused funds remaining at year-end are forfeited. In other words, you have to use it or lose it.


The Child Tax Credit lets you reduce your tax bill for each qualifying child you have younger than 17. (This credit is reduced for high-income taxpayers.)

If you pay childcare expenses for your child who’s under age 13, you may also be eligible for the Dependent Care Credit.

For parents who adopt a child, you may be eligible for the Adoption Credit, which can help offset the significant costs of adoption.

Create a team to help

Your lawyer, tax advisor, and financial advisor can provide more information about these topics. They can help you evaluate options and explain how each can fit into your personalized plan and situation.

Next steps

  • Create your team to help you along the way: lawyer, accountant, financial advisor.
  • Make an appointment to create or update your estate plan.
  • Review your budget, insurance needs, and taxes.
  • Start your child’s education fund.

Trust services available through banking and trust affiliates in addition to nonaffiliated companies of Wells Fargo Advisors.

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.

Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.