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Adopting a Child Requires a Specific
Financial Plan
Adopting a child is a massive decision, probably bigger than
education, marriage or career. Few individuals or couples
anticipate how expensive it is to have a biological child, and
depending on your choice of adoption scenario you're going to
need a financial plan.
It's not overstating to say that in some situations, you may
be paying the price of a current four-year public college degree
just to complete the adoption process.
Here's a very general review of those figures. The least
expensive form of adoption comes from your local foster care
system. Your cost could conceivably be zero since states often
subsidize these programs to place these children. Meanwhile,
agency and private domestic adoptions can range from $5,000 to
$40,000 depending on agency and attorney fees, travel expenses,
birth mother health and living expenses, state requirements and
many other factors unique to the situation. International
adoptions are somewhere in the middle of that cost range even
with travel, adoption agency and other fees and expenses that
need to be paid on the ground in the country of adoption.
All parenthood comes at a price. But with the help of a
financial planner, you can not only afford the adoption but
continue your planning for your child's upbringing and your
retirement. Here are some financial stepping stones to a
successful adoption:
Create a financial plan or re-evaluate your existing one:
As you already know, a financial plan is a written set of goals,
strategies and a timeline for accomplishing those goals. It
starts with the basics — determining how much you really have in
savings, debt, insurance and investments. Your planner can also
help you understand how much the additional costs of adopting
and raising a child will affect all those numbers.
Get rid of your high-interest debt: A major decision
like having a child is a good reason to take a "clean
slate" approach to debt. Before you can build a reserve
fund, it's wisest to pay off your credit cards and any other
high-rate debt first.
Make sure you have a solid estate plan in place:
Today, adoptive parents are typically older and closer to
retirement. That means you have to create an estate plan and a
safety net of insurance and savings that will secure your
child's future if the worst happens. Also, if you are a single
parent or part of an unmarried couple hoping to adopt, the whole
issue of estate planning becomes much more critical. You may
also want to consider separate guardianship for the child and
the child's finances.
Check your insurance options: In today's health, life
and home insurance environment, the addition of a child to a
policy can bring additional cost — sometimes without the
guarantee of the best coverage. Before you start the adoption
process, check with your employer or your independent insurance
agent to make sure you have the best coverage for what you can
afford. If you're self-employed, family coverage becomes an
extremely expensive bargain, so you really need to evaluate your
options since you're footing the entire bill. Also, keep in mind
that you can put an adopted child on your health plan within 30
days of the adoption date, but if you delay, you might have to
wait until the next open enrollment session to put your child on
your insurance.
Know your tax advantages: Families adopting overseas
can get some tax relief. Parents are entitled to a one-time tax
credit of $11,390 in 2007 for adoption expenses. Though the
credit can't be reduced by the alternative minimum tax,
qualifying expenses include paperwork costs, court costs,
attorney fees and all travel expenses including meals and
lodging. This amount is phased out if an individual's modified
adjusted gross income (MAGI) is between $170,820 and $210,820.
Over the $210,820 level, taxpayers can't claim the credit or
exclusion.
Build your reserve fund: When a baby, toddler or older
child comes into the house, money flies out the door at a
velocity most childless people have never seen. Children always
cost money and sometimes unpredictably so, but it pays to build
your savings before they arrive so you won't overuse your credit
cards. Also, in the case of surrogacy, it's possible that a
birth mother's health may take a turn during the pregnancy, so
that's an expense that needs to be anticipated.
May 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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