When you're young and healthy, it's easy to think you have lots of time to get your affairs in order regarding your finances. While we can only hope that we'll live a long, beautiful life we don't know when our time is up. That's why it's important (no matter your age) to consider estate planning as a strategy to make sure you have a plan for your money after you pass.
What is Estate Planning?
First, let's dissect the term "estate planning". It's a term you may have come across but not really sure what it means or refers to. It's a broad term that covers how someone will manage and allocate their finances, properties, etc. In the event of death, what will happen to your financial accounts, insurance and property? Estate planning can help you create a plan. It can be overwhelming to figure out all you need to do. Here are the key things you need to get started.
1. Assigning Beneficiaries
A beneficiary is someone that you designate to receive your funds or payouts after you die. For example, you can assign a beneficiary to your 401(k) or life insurance policy. So in the event of death, the money you saved in your retirement account can live on and benefit someone else. In regards to life insurance, your beneficiary is the person who will receive the payout when you die.
Assigning beneficiaries is important so that your money gets to the right person easily. If there are no beneficiaries, the money can go to the estate. If there is no will, this process can be a hassle and there may be hurdles to overcome. Make your loved ones' lives easier and offer your funds to the right person by making them a beneficiary.
In order to do this, check your online accounts for retirement, insurance, etc. to designate a beneficiary. If you can't easily do this online, get in touch with the company that manages your retirement and insurance to properly assign someone as a beneficiary.
Additionally, you should consider adding a secondary (or contingent) beneficiary, which is essentially a backup in the event something happens to your primary beneficiary.
2. Creating a Will
A will is a legal document that states how your assets will be distributed after death. Creating a will is one of the best things you can do so there is a plan on how to divide your money and property, and who can be a guardian for any children or pets.
If there is no will, in the worst case scenario, your property can go to the state. You might have recalled that superstar Prince did not have a will in place at the time of his death. His estate is estimated to be $200 million and his family and heirs have not received any money even though it's been a couple of years since his passing.
The assets are all in legal limbo and that huge chunk of money is not serving any of Prince's family members or associates. Take this as a lesson to create a will today!
It doesn't have to be hard either. You can use online resources like LegalZoom and even get a free will using Tomorrow and Fabric. Free is a pretty great price, so no excuses! Create a will and make sure you have a plan for all of your assets after you pass away. That way your money can live on and help future generations, and it eliminates a lot of hassle and confusion.
It can also help to get life insurance to protect your family and help ensure they have funds to bury you and carry on with the loss of income. You can get a policy using resources like Haven Life, Fabric or Policy Genius.
3. Durable Power of Attorney & Healthcare Proxy
In some cases, death is not a swift or sudden thing. It can be a long, drawn out process that can start with illness or an accident. At some point, you may not be in the right mental state or ability to manage your own affairs.
If you are unable to manage your affairs because you are, let's say, in a coma (or something similar), you need a trusted person to take on these matters for you.
That's where durable power of attorney comes in. A durable power of attorney allows someone to take care of your affairs, such as paying bills, managing finances and more. If you are unable to make decisions on your own or to communicate effectively, a durable power of attorney can ensure that things are still taken care of on your behalf.
A power of attorney is a document that states who will take care of things in your place. But when finalizing this, you want to ensure the word "durable" is included in order to keep it active if you end up losing your mental capacities.
Additionally, you'll want to assign a healthcare proxy. A healthcare proxy is someone that will work to make sure that your requests for care are handled the way you want.
When you have a medical power of attorney — which states your desires for care in the event you are unable to make decisions on your own or communicate those wishes — your healthcare proxy will work with medical professionals to adhere to your requests.
For example, if you did not want to be on life support or if you have certain end of life requests, it's best to get all of that in writing.
Thinking about death can feel morbid and be tough to process. However, getting your finances and documents in order before you pass can be one of the greatest gifts for your family and future generations. It can also minimize stress and confusion for the people left behind and can help ensure that your wishes are handled with care and executed just the way you wanted.