Benjamin Franklin once said that nothing was certain in this world except death and taxes. Even though it may be unpleasant, preparing for both of these events is important to your overall financial health. When it comes to making decisions about how you want your finances to be handled after you’re gone, you can’t afford to put it off. If you haven’t put much thought into end-of-life planning, here are some steps you may want to take to ensure that your family is protected.
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1. Make a Will
A last will and testament is the most basic document you’ll want to include in your estate plan. Writing a will gives you the opportunity to specify how you want your assets to be distributed after your death. If you die without a will, you’re considered intestate for legal purposes and it’s left up to the probate court to divide up your property according to state inheritance laws.
You can also use a will to name a guardian for minor children or appoint someone to be the executor of your state. Again, if you don’t have a will the probate court will assume these responsibilities.
The process for making a will varies from state to state. Some states require a will to be in writing and be witnessed by one or more people while others may consider videotaped or oral wills to be valid. Even if you have a relatively small estate, writing a will is a smart move if you’re concerned about what will happen to your property after your death.
2. Consider a Living Trust
When it comes to estate planning, a will alone can only do so much. In some cases, it may be necessary to set up a living trust. Unlike a will, a trust takes effect while you’re still alive and you can use it to manage your estate both before and after your death. Examples of the types of assets you can put in a trust include real estate, vehicles, stocks, bonds, antiques, artwork, jewelry and bank accounts.
There are several reasons why you may want to set up a trust in addition to writing a will. If you plan to leave a substantial part of your estate to charity, you can set up a charitable remainder trust to manage those assets. A special needs trust allows you to set aside certain assets for the care of someone with a mental or physical disability. If you have young children, you can set up a trust for their benefit with specific instructions as to how and when they’re able to access the money.
Depending on your situation, setting up a trust may yield some tax savings for your beneficiaries. Another advantage of a trust is that any assets that you transfer into it are exempt from the probate process, which can save you money on probate costs and keep the contents of your estate private. There are certain ongoing costs associated with establishing and maintaining a trust so you may want to run the numbers with a qualified estate planning attorney to make sure it’s the right fit.
3. Review Your Beneficiaries
Naming a beneficiary for certain types of accounts can ensure that your assets go to the right person when your time is up. If you have life insurance policies, annuities, college savings accounts, 401(k)s, IRAs, brokerage accounts or certificates of deposit you should take the time to double-check who is listed as your beneficiary. Keep in mind that if you have an account with a specified beneficiary, you can’t use a will or trust to leave the assets to someone else.
If you have joint bank accounts set up with your spouse, you should check with the bank to see if they’re set up to allow right of survivorship. This means that if one of you dies, the money in the account passes directly to the other spouse without having to go through probate. In some states, right of survivorship is automatic but in others, you may have to request a specific notation on the account. Having your accounts set up this way means you or your spouse won’t have to navigate a mountain of red tape to access your cash later on.
4. Evaluate Your Insurance
Life insurance is designed to replace lost income if something should happen to you or your spouse. If you bought life insurance several years ago, you may want to review your policy to make sure you’ve got enough coverage. How much life insurance you need really depends on your income, your spouse’s income, your assets and your liabilities.
In addition to life insurance, you may also want to consider buying long-term disability insurance and long-term care insurance. Long-term disability coverage is designed to replace lost income if you or your spouse is unable to work because of a disability. Long-term care insurance covers the cost of medical care if you or your spouse develops a serious chronic health condition. While you may not think these types of insurance are necessary right now, having the right policies in place can pay off big later on.
Planning for end-of-life situations is no picnic but it’s essential to protecting your finances and your peace of mind. The more prepared you are now, the better off you and your family will be when the inevitable occurs.
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