According to data from the National Association of Estate Planners & Councils, over 120 million Americans don’t have updated plans to protect their families when accident, sickness, or death happens.
Jumpstarting the estate planning process can be the most significant present you give your family so that your loved ones aren’t left with uncertainty and conflict. These five steps can help you start the process and provide clarity to your family about your last wishes.
1. Create a Will
If you die without a will, the court will decide what to do with assets, debts, and even your children. This is called dying intestate, and it leaves the distribution process up to the state law where you reside. To write a valid will, simply focus on stating exactly who you choose to inherit your property, and also write who you want as a guardian for your kids in case something happens to the other parent as well. If proper planning is not completed, your family will be stuck in probate court, which is time-consuming and expensive.
2. Consider a Trust
If you want to avoid the probate process entirely, consider setting up a revocable trust. If you hold your assets in this manner, you will essentially transfer ownership of your property to a trust that includes exact details on distribution when you die. Because the information is contained within one document, you are able to skip probate completely.
3. Set Up Life Insurance
Life insurance is a smart idea, especially if you have young kids, are a homeowner, or you will likely owe a large amount of estate tax after you die. You will need to make sure that you have adequate coverage for your family to meet all of their expenses when you’re no longer there to help. Consider purchasing term life insurance, which can be an affordable option as you pay a fixed premium for the entire life of the term.
4. Assemble End-of-Life Documents
Beyond wills, trusts, and life insurance, critical estate planning should also involve assembling three important end-of-life documents. To help your loved ones follow your wishes when you can’t, you should make sure they have these three documents:
– A power of attorney that allows your designated agent to manage your legal affairs and financial situation.
– A form that allows the release of information from your doctors to chosen representatives.
– An advance directive form where someone is named to make medical decisions when you’re incapacitated, and a living will to detail exactly what medical treatment you desire when your life is ending.
5. Learn About Estate Taxes
Although the majority of estates will not owe taxes, if you have a taxable estate that is worth over $5.43 million, it is important to understand how much you will owe and how to strategically minimize that amount. For example, if you leave all assets to your spouse, that distribution will be tax exempt.