Whether we’re young and just starting life or older and approaching the end, we don’t want to think about our own death. Adding money to the mix only makes it worse.
But all adults need to think about what will happen to their financial affairs when they die. (These seven documents you should fill out before you die may help you get started.) Failure to do so could leave a mess for those who survive you and could cost them money.
So evaluate your estate planning and see if it’s adequate. (For the record, I am not an attorney and this is not meant to be legal advice. I have been a financial planner and often referred clients to get competent legal advice. This is meant to do the same.)
Understanding the Lingo
Let’s create working definitions for some commonly used terms. Estate refers to the financial and physical assets you own or partially own at the time of your death. Estate planning comprises the arrangements you make before your death to ensure your wishes are followed after death. A will is the most commonly used document to make your wishes known to those who survive you and any appropriate government authorities.
Decide what you want your estate plan to do. You need to name someone the “executor” or boss of your estate. They’ll be responsible for executing your last wishes. An executor does not need to be a lawyer. Any adult with good judgment will do. Many people choose a family member, but you may decide you want someone outside the family like a lawyer or bank to do the job — the choice is yours.
Provide instructions on how to distribute your financial assets and physical property. You may want specific items to go to designated people. Or you may want to make it clear that certain people are to be excluded from any inheritance.
If you have children, specify who you want to raise them. Your kids will need someone to take care of them physically and manage their finances until they reach adulthood. Young children are often left financial assets in a parent’s estate.
Also, consider whether estate taxes could apply. If so, you may be able to take steps to reduce the tax burden your heirs will face.
Last Will & Testament
A will is a very specific document. It’s not a list of items with names next to them that you keep in your safe deposit box or a sticky note pasted on a silver tea service that you want to go to little Sally.
A will is a legal document containing certain elements required by state law. While none of these elements are difficult, failure to include them could invalidate the will. To complicate matters, each state has different requirements. Make sure your will is legal in your state of residence. It’s a good idea to have it rechecked if you’ve moved to a new state since it was written.
Many single adults think they don’t need a will. They’re often wrong. Without a will, it could take months to have someone assigned to sell a car owned by the deceased or pay any bills. There could be a problem finding someone to pay funeral expenses. Turns out, Americans are dying with an average of $62,000 of debt, so this is important. (One way to find out any debts you have or any other problems with your finances is by reviewing your credit. You can see a free snapshot of your credit reports on Credit.com.)
Another common misconception is that married couples can solve the problem by putting everything into joint accounts. Unfortunately, not everything can be titled jointly (think of jewelry or home electronics). Even if everything is held jointly, what happens if both spouses die in a joint accident?
Dying without a will can leave a mess. State law will determine the who executor will be and how your property will be distributed. That might not produce the results you want. For instance, in some cases law dictates that some inheritance goes to children before the surviving spouse.
A will is especially important for unmarried couples. State laws are a patchwork. Some states recognize a common law marriage just the same as one registered with the state. In other places, a lifelong live-in partner is accorded no more rights than a complete stranger.
State laws are also problematic for couples in a second marriage. You may think certain assets you brought into a second marriage should go to children from your first marriage. The state might think otherwise.
Bottom line? Just about everyone who has reached adulthood should have a will.
How Do I Write a Will?
Being frugal, it’s tempting to want to write your own will or buy a fill-in-the-blank form. Normally I encourage do-it-yourself efforts, but that could be a mistake in this case. If something isn’t done right no one will know until after you’re gone and can’t correct it. A small mistake could be costly. This might be a case where hiring a professional is good money management.
You can still shop around to save money. If you’ve already thought about what you want your estate plan to accomplish, you’ll reduce the number of hours the attorney will spend preparing your will, which can also save money.
Make sure your executor has access to a copy of your will when you die. They’ll need it as proof they can make decisions for you. Give them a copy of the will, or, if you’d prefer they not see it, give a copy to your lawyer and let the executor know who the lawyer is. Don’t put the only copy in your bank box. The bank will not let the executor enter just because they say they have the right. The bank will require proof, which will be locked in the box.
Unless your financial or personal affairs are complicated, planning your estate isn’t that expensive. Don’t leave a financial mess for your loved ones as their last memory of you.
This article originally appeared on The Dollar Stretcher.com.
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