As Father's Day approaches, many of us will reflect on what parenthood means; the responsibility, the joy, and the desire to protect our children no matter what the future holds. For new parents, one of the most meaningful steps you can take to safeguard your family is often one of the least discussed: estate planning. Whilst it does not bring the same excitement as planning the baby shower or designing the nursery, proper tax and estate planning is one of the greatest gifts you can give to set your family up for long-term stability and success.
This article sets out a practical checklist for new parents who want the peace of mind of ensuring that their affairs are in order, their tax exposure is minimised, and their family is provided for in every eventuality.
Immediate Steps
1. Update your Will
If you do not already have a Will, the arrival of a child makes this a top priority.
Under the rules of intestacy in England and Wales, if you die without a Will, your estate is distributed according to a statutory formula which may not reflect your wishes. This formula gives your surviving spouse or civil partner a fixed entitlement but offers no flexibility for asset protection or tax planning. It also means your child could receive a substantial share of your estate outright at the age of 18. For unmarried parents, the position is particularly precarious: a surviving partner who is not married to or in a civil partnership with the deceased has no entitlement to the estate whatsoever.
A properly drafted Will allows you to specify who inherits your assets, appoint guardians for your children (see point 2 below), structure your estate in a tax-efficient manner, and set out your wishes for how your estate should be managed on their behalf.
If you already have a Will, now is an important time to review it - the birth of a child is one of the most important life events and will likely require the terms of your Will to be updated.
2. Appoint Guardians
Choosing a guardian is one of the most significant decisions new parents face in the estate planning process. A guardian is the person who will assume parental responsibility for your child if both parents die before the child reaches adulthood. Without making a formal appointment, the court will decide who raises your child, and that decision may not align with your preferences.
When selecting a guardian, consider the individual's values, lifestyle, location, and willingness to take on the role. It is sensible to discuss the decision with your partner, and also with the proposed guardian in advance, to ensure that you are all aligned. You might also discuss the principles you would wish your guardians to consider as part of raising your child (for example, you may wish for them to be raised with certain values or religious beliefs). It is important to have these discussions early so your chosen guardian is comfortable in the role and able to raise any questions.
You should also give thought to whether you wish to appoint guardians jointly (for example, a married couple together) or individually in a specified order of priority. This distinction can be significant: if guardians are appointed jointly and their relationship later breaks down, the appointment may give rise to complications that could otherwise be avoided by appointing them sequentially.
3. Consider a Trust
Leaving assets outright to a minor child is generally inadvisable, as they cannot legally hold property until they reach the age of 18. Establishing a trust - whether within your Will or as a standalone arrangement - allows you to ring-fence assets for your child's benefit and to specify the terms on which they can access those assets. You might, for example, direct that funds be used for education and maintenance during childhood, with the capital passing to them at a specified age, such as 21 or 25.
Trusts also offer significant flexibility in relation to inheritance tax (IHT) planning and asset protection. For example, assets placed into certain trusts may fall outside your estate for IHT purposes after seven years, potentially reducing the tax burden on your family. A well-drafted trust can accommodate changes in family circumstances over time, and trustees can be given discretion to respond to evolving tax legislation.
There are also important income and capital gains tax considerations when establishing a trust for a minor child. For example, income and gains arising to a lifetime trust created by you for your minor child or children will be taxed on you until the child reaches 18. A bare trust arrangement set up by a grandparent can avoid this, however any unspent balance will then belong to your child when they reach 18 – for this reason, some grandparents limit the amount contributed so that after (for example) school fees and holidays have been paid for, there is not much remaining at the child’s 18th birthday.
4. Make Lasting Powers of Attorney
Most new parents are unlikely to have turned their minds to the possibility of losing capacity during their lifetime, but Lasting Powers of Attorney (LPAs) are crucial as part of planning for this scenario. LPAs allow you to appoint a trusted person to make decisions on your behalf if you become unable to do so, whether in relation to your finances and property or your health and welfare.
For new parents, this is particularly important. If you were to suffer a serious illness or injury, an LPA ensures that someone you trust can manage your financial affairs, pay household bills, and make decisions about your care - without the delay and expense of a court application.
Additional steps
5. Take Advantage of Tax-Efficient Gifting
The arrival of a child is a natural time to start putting money aside on a regular basis, and parents have access to a couple of particularly tax-efficient savings vehicles for this purpose. Junior ISAs allow you to contribute up to £9,000 per year per child, with all growth sheltered from income tax and capital gains tax. You can also pay up to £2,880 per year into a pension for your child, which the government then automatically boosts to £3,600 through 20% tax relief. Whilst a pension cannot be withdrawn until your child reaches their late fifties, that represents decades of tax-free investment growth – and, by that point, the fund could be a significant sum, relieving some of the pressure on your child to save for retirement during mid-life when they may have other financial commitments such as a mortgage or children of their own.
From the parents’ perspective, regular contributions to a child’s savings can also be structured in an IHT-efficient manner. Each individual has an annual exemption allowing gifts of up to £3,000 per tax year free of IHT, and small gifts of up to £250 per recipient per year are also exempt. Beyond these exemptions, regular gifts made out of surplus income - such as monthly contributions to a Junior ISA or pension - may qualify for the normal expenditure out of income exemption, removing them from your estate immediately. Early and consistent use of these reliefs can make a meaningful difference over time.
6. Review Your Pension and Life Insurance Nominations
After the birth of a child, you should also consider updating beneficiary nominations on pension schemes and life insurance policies. These assets often pass outside of your Will, according to the nomination or expression of wish you have filed with the scheme provider. The arrival of a new child is an ideal moment to review these nominations and ensure they reflect your current family situation.
If you do not yet have life insurance, now is the time to consider it. A suitable policy can provide your family with financial security in the worst-case scenario, helping to cover mortgage payments, childcare costs, and day-to-day living expenses after you have passed away. It is also worth considering whether any life insurance policy should be written in trust, so that the proceeds fall outside your estate for IHT purposes and can be paid to your beneficiaries without delay.
7. Plan for Your Digital Estate
We live in an increasingly digital world, and new parents should give careful thought to what happens to their digital assets (and access to them) in the event of death or incapacity. Digital assets can include everything from online banking and investment accounts to cryptocurrency holdings, social media profiles, cloud-stored photographs, and email accounts.
There are many things to consider when it comes to digital assets, such as nominating legacy contacts for important accounts and/or ensuring passwords (as well as cryptocurrency seed phrases and private keys, where relevant) are securely recorded and accessible.
8. Organise Your Important Documents
Alongside all of the steps outlined above, it is important to ensure that your key documents are organised and accessible. Your Will, trust deeds, insurance policies, pension details, property deeds, tax records, and LPAs should be stored securely, and your executors and attorneys should know where to find them.
A Father's Day Resolution
This Father's Day, consider making a resolution that truly lasts. Taking the time to put your tax and estate planning in order is not a sign of pessimism - it is an act of love and responsibility. By addressing these steps now, you can enjoy the present with the peace of mind that comes from knowing your family is protected, whatever the future may bring.
If you have questions about any of the matters discussed in this article, or if you would like assistance with your tax and estate planning, please do not hesitate to contact our Tax, Succession and Philanthropy team.
