There’s no wrong time to start estate planning, even if you’re “only” in your 20s or 30s, and especially if you’re recently divorced. Estate planning is also important if you’re just getting out of a financial rut, as it allows you to embrace your new-found financial freedom and start making plans for the future. And the earlier you begin mapping out your financial (and legal) future, the better. Today, Beyond the Rut has some advice on where to start if you’re looking at estate planning for the first time.
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Plan for the Worst-Case Scenario
It can be a tough topic to consider, but considering the worst-case scenario is the first step in productive estate planning. So, if you were to meet an unfortunate and untimely demise, what would help your family as they grieve and make final preparations?
Cover Potential Funeral Costs
Funeral costs are the first issue your loved ones would face. As MarketWatch explains, final arrangements can be expensive, totaling thousands of dollars. Fortunately, burial insurance can cover funeral expenses and even lingering debt like medical bills or personal loans. When choosing a policy, be sure to factor in the estimated costs of all the final arrangements including whether you wish to be cremated or buried, and if there will be a memorial service.
Think about what arrangements you prefer when the time comes and choose a burial insurance policy to suit your needs. This way, one less stressor would impact your family in an already challenging time. You can also investigate life insurance policies for extra benefit to your family.
Designate Beneficiaries
Designating beneficiaries for any life insurance policy is crucial to ensure your loved ones receive the appropriate benefits if you pass away. Whether it’s your workplace insurance policy or naming a beneficiary to inherit your wealth, Forbes explains that outlining where you want your assets to go can make things easier for your family.
Typically, a primary beneficiary on, say, a workplace insurance policy is your spouse. However, as a divorced individual, you need a different beneficiary. This can be a family member, or you can also list additional beneficiaries and stipulate what stake each person receives. This includes either passing your property on to someone, or designating them as the recipient of the proceeds of the sale of your home. Either way, you need to determine how much equity you have in your home.
Keep in mind that you may be able to list a minor child as a beneficiary, but you’d also need someone to oversee their inheritance until they reach legal age. Otherwise, they may not receive the funds until they turn 18, if at all.
Establish Guardianship
If you have children, establishing alternative guardianship for them is another worst-case scenario preparation step. For divorced couples, guardianship can be as simple as your ex-spouse receiving custody rights by default. But less conventional family structures can mean legal issues if one parent passes unexpectedly, especially if the parents were never married or one (or both) are not biological or legal parents of the child.
Look at your situation from every angle to determine you and your partner’s rights to any minor children. Then, establish a guardian for your kids – someone to take over the responsibility of raising them if you and your partner are no longer living.
Create a Will
Typically, creating a will is the first item on any person’s financial planning checklist. But there are many ways a will can be challenged, so multiple legal steps (and good advice) are necessary.
While you need to make assurances for those aspects of your legal documentation, other necessary items include naming an executor of the will, as well as divvying up your assets as you choose. Of course, if you have no assets, are single, and have no kids, you likely don’t need a will.
If you do have kids, and assets, then selecting the right executor is crucial for managing your estate. It may not be a simple decision, though. As CNBC explains, a lot goes into choosing who will serve as an executor. You want to choose someone who is both reliable and healthy enough to handle the responsibility. Also, know that non-U.S. citizens living outside the country or people with a criminal past are typically ineligible.
Plan for the Future
While it’s not the most common thing to consider, your future needs are important to keep in mind, too. This starts with putting money toward retirement savings. The sooner you make this a priority, the more you’ll be able to save. If your employer offers benefits like a matching 401(k) contribution, take advantage of this and, if you can, max out your annual contributions. You can supplement this type of savings by investing in an IRA (individual retirement account). Just bear in mind there are annual maximum contributions, and currently that falls at $6,000 a year. It’s also helpful to calculate any equity you have in your home so that you have a good idea what kind of equity you have at your disposal.
More so if you have a family history of dementia, Alzheimer’s Disease or another degenerative illness. Nowadays, most younger people have the option to start paying for long-term care insurance, and this is usually through an employer. Putting money toward LTC insurance now ensures you have access to lower premiums, and it sets you up for an easier time later in life.
Also, quick tip: during your planning, you’ll be jostling lots of documents – including lots of digital ones. To make it easy on yourself, a free PDF merger is a great option to make sure nothing gets lost in the shuffle. And it’s as simple as selecting the files you want to combine, ordering them into your preference, and selecting “merge documents.”
Estate planning may sound like something to consider closer to retirement. But for many 20- and 30-somethings, getting ready now is the best decision. Taking precautions “just in case” can provide peace of mind and a game plan for your family to follow if anything happens to you. Even in your absence, your forethought can help relieve some of their sufferings.
Written by guest blogger Justin Bennett, [email protected]. You can read more from Justin here, 8 Mental Health Strategies That Might Surprise You.
Beyond the Rut is a place to listen and read stories about people who have broken through the mundane and made decisions that improved their lives. Planning for your future – and eventual demise – doesn’t sound exciting, but it can give you peace of mind to enjoy life and get out of the financial rut you may be in. Check out more stories on our website and challenge yourself to get out of your own rut.
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