Credit And Debt

The Basics of Estate Planning (Even If You Don’t Think You have an “Estate”)

Death is inevitable and, regardless of how you feel about that, there will be family left behind who will have to manage “your estate.” Now the word estate may conjure up images of Downton Abbey or an oil baron’s fortune, but if you are leaving anything behind, that is your “estate.”

The key is to ensure that those who depend on you financially aren’t left with more grief and hardship than 1500800228-5523-1500795658-1572-3-gen-familynecessary. With this estate-planning checklist, you will learn how to prepare so your loved ones don’t have to.

1. Decide who the recipients will be. If you died today, who would be your beneficiaries of what you leave behind? If you’ve recently gotten married or divorced, you need to make changes to your bank accounts, will, life insurance policy, 401Ks, IRAs, corporate benefits programs, and any other account that list a recipient. This assures that your financial dependents, current spouse, next of kin or whomever you wish to be your beneficiary is properly listed.

2. Decide on an estate plan. Having an estate plan can help your loved ones avoid unnecessary legal and financial hassles and expenses, while guaranteeing that your final wishes are carried out as intended. When it comes to an estate plan, here are some factors to think about:

  • Have you created a will? A will specifies who takes possession of your belongings/assets when you die. You don’t have to hire an attorney to create a will; you can do it yourself. There are professional sites online that can help you create one together.
  • Do you have a living will or proxy? An advanced directive, or living will, details your wishes for end of life care. For example, if you are in a car accident resulting in a vegetative state requiring life support, a living will determines whether or not your appointed proxy can “pull the plug.”
  • Who has power of attorney? A person who has power of attorney makes decisions for you should you be in a position where you are unable or unavailable to do so. This includes signing any legal documents and dealing with all of your financial and legal affairs. This can be an actual attorney or a friend or family member you’ve deemed appropriate.
  • Who will care for your children? If you are a parent, you will need to think about guardianship and decide who will look after your children in case you and your spouse die.
  • Do you have a revocable trust? Also known as a living trust, a revocable trust details who your heirs are; however, unlike a will, it cannot be challenged in court. While a living trust determines who will receive your assets upon your death, until then, the owner retains full control of the assets.
  • Or should you have an irrevocable trust? Irrevocable trusts are their own legal entities. Should you need to remove some assets from your estate for tax purposes, you can put them in an irrevocable trust, which in essence becomes the owner of those assets.

Because life is in a constant state of flux, estate plans should be reviewed every five to seven years. If you don’t already have one, you can meet with an estate-planning professional for a free consultation.

3. Purchase life insurance.

You absolutely need life insurance when someone else depends on you financially. With the proceeds from a life insurance policy, your spouse and/or children can continue to meet their everyday expenses and plan for the future, such as college or retirement. Term life insurance is an inexpensive safety net. Here are some questions you should ask yourself before buying a policy:

  • How much and what type of insurance do I need?
  • How long of a term is necessary? Should it be permanent?
  • Can I keep my life insurance through my employer if I lose my job, resign or retire?
  • How much can I afford to pay and how do I get affordable rates?

In addition, you’ll want to consider disability insurance in case you become ill or injured and unable to work.

4. Organized yourself and finances.

Create a spreadsheet of all of your accounts, their numbers and locations. Print out a copy and keep it with your will, insurance policies and any other financial documents. Keep a copy in a safe deposit box, your attorney’s office and/or a safe at home. If you ever need to update your information, revise all existing versions.

Whether you hire a lawyer, financial advisor or take care of the documents yourself, basic estate planning will ensure that your finances and their allocation are dealt with properly.

Have you gone through the estate planning process—written a will, purchased life insurance or established a trust? If so, what tips do you have for other financially responsible families?