A few weeks ago, I wrote a pretty basic article covering life insurance. While that’s a great starting point for your average individual, it doesn’t cover the full spectrum of planning needs.
What is estate planning
According to the folks over at Investopedia, “The term estate planning refers to the preparation of tasks that serve to manage an individual’s financial situation in the event of their incapacitation or death.” To summarize, estate planning can be described as the things you do in the event that you might meet an untimely end. Sounds morbid, but it’s a necessary conversation.
“The term estate planning refers to the preparation of tasks that serve to manage an individual’s financial situation in the event of their incapacitation or death.”Julia Kagan, Investopedia
Estate planning can be really simple, or extremely complicated. For the simplest of situations, a will could be drafted online and completed for no cost. For more complicated scenarios, a type of estate may be required. We’re not going to get into all the different types of estate planning, as we’re not attorney’s and this is really best settled with the aid of solid legal advice.
The basics of estate planning
As we covered in our earlier article, life insurance is a really good starting point. You can ensure your loved ones are covered to a specified financial amount and can designate a beneficiary that will supersede any will. On that same note, accounts that can have named beneficiaries can avoid probate altogether and lead to a more streamlined process. So make sure those beneficiaries are up-to-date!
Another easy step you can take is drafting a basic will. In some states, this can be quite informal. In others, you’ll want to ensure the document follows state guidelines which will allow for an effective probate process. Either way, put your wishes on paper and have it notarized. This at least gives some track record of your intentions.
After we had kids, I wrote our will on my own to ensure we had a basic document. We had this notarized and stored it in our safe. Now that we’ve progressed a bit more financially, we are finally having an attorney formulate a more robust will that will cover any foreseeable (and unforeseeable) situation. The cost to have this done professional typically ranges from $400 to $1500, so not too bad of a price for a good nights rest.
One last key step that you don’t want to forget: leave good instructions for your executor. We got it, you’ve already taken the first step and created the will! But don’t forget to do things like gather up account numbers and life insurance policy information and put it in a binder. This can be a Godsend for an executor.
More complicated situations
For high net worth individuals, couples with kids from several different marriages, and other unique situations, more complex estate planning measures can be required. This could include the formulation of LLCs, living trusts, irrevocable trusts, advanced directives, and powers of attorney. If you think you’re getting into some of these less-typical situations, you should contact an estate planning attorney near you for guidance.
One thing you’ll have to remember is that you can’t make everyone happy. If you have 5 siblings, 4 of them may be slighted when they find out who would gain guardianship of your children in the event of your death. But honestly, who cares. The most important thing to consider is the well-being of your children. Because of this, it is advisable to keep the executor of the will in the know, but possibly limit the information you share with others. This will help preserve your relationships. This is good, considering there is a high probability you don’t die an untimely death and this planning is all for naught.
Either way, you’ll want to make sure your executor is well-read on the situation. This person is responsible for carrying out your wishes, and in my opinion, it’s best that you don’t surprise them. Keep them in the loop during the planning process and make sure they know exactly what to do in the event of your death.
Don’t freak out, this is an “insurance policy”
Hey, calm down! This is all part of being financially responsible. It is likely you live a long and fulfilling life and don’t have to worry about someone else raising your young children. But regardless of this fact, it’s better to be prepared and not need it, then need it and not be prepared. As always, keep planning!