By Rick Irwin, CFP, CLU
Originally published on www.goldengirlfinance.com. Republished with permission.
It's true, a baby changes everything in your life - including these 7 financial areas
The birth of your baby is the ideal time to review your insurance policies, your Will and Power of Attorney and how your tax situation will change. It is now even more important to ensure your loved ones are well looked after if anything should happen to you. Here are a few topics to consider helping you prepare for some of the unexpected events that can happen in life.
If something happened to you tomorrow, how much financial assistance would your family need to manage everyday living expenses – and for how long? A financial advisor can help you plan out how much coverage you need and what type of coverage is best as well as recommend ways to save on your insurance costs. For example, if you and your spouse purchase policies together you can save significantly, and some plans will discount your costs by up to 15% if you pay annually instead of monthly. Remember that your premiums are lower when you’re younger as statistically you’re generally healthier and will likely live a long time. If you are a non-smoker you can also ask for ‘preferred’ rates, which may also reduce your premiums.
An employer often offers about two thirds of your pre-tax employment income as part of a basic disability insurance package. In fact, according to Today’s Parent magazine, a 35-year-old woman is seven times more likely to suffer long-term disability than die before she turns 65. The last thing you want to worry about if you are sick is your finances. If you do not have disability insurance through your employer you should consider obtaining this on an individual basis.
Update your Wills and Powers of Attorney
It is always important to keep your Will and Power of Attorney up-to-date with changes in your life – especially the birth of a new baby. When you have a legal Will, you control who receives your assets and money. Without a Will, the government decides who gets what. It’s also important to name a guardian for your child in your Will. When choosing a guardian consider these issues:
- Will they be comfortable with the emotional and financial responsibilities of raising your children?
- What are their attitudes on how to bring up children – and are they very different from yours?
- How do they get along with the rest of your family, who will likely want to remain involved with your children and continue spending time with them?
- If you are thinking of a married couple, how old are they? If something happens to them, who will be the backup guardians for your children? What will happen if they divorce? It may be better to appoint one as the primary guardian.
Filing your tax return
While having children in Canada doesn’t result in much in the way of immediate tax savings, there are some tax-related benefits, as follows:
Child care expenses
If both partners work outside the home, the lower-income spouse can deduct a certain amount of child care expenses. For every child who is under the age of seven at the end of the year, you can claim up to $7,000 for daycare expenses. For every child over seven but under seventeen, you can claim up to $4,000 for daycare expenses, including the costs of many summer day-camps.
Other child-related tax benefits:
- Universal Child Care Benefit (UCCB): This provides a $100 benefit per month per child under six years old. The money is taxed in the hands of the lower-income spouse. You will have to apply for this benefit: it is not automatic.
- Child Fitness Credit: You probably won’t claim this for an infant but as your child ages you can claim a credit of up to $500 a year for eligible programs that enhance the child’s fitness.
- Tuition Tax Credit: Up to $5,000 in qualifying post-secondary educational expenses can be transferred to a parents return, provided the child has zero-based their own income first.