Estate Planning Basics For All Ages
Your probably asking yourself, “Why is there an “Estate Planning Basics” post on a website about frugality. Well, that’s easy. My website is about saving money, living well, being organized and loving my family well. That’s why I feel it’s important to encourage the people I care about to step up and take care of these things, no matter how uncomfortable or depressing this subject may be.
Frugality does play a big part in this very subject. If you don’t take care of it while you’re alive, it can be not only emotional, but very costly to the ones you leave behind. Therefore, I hope, with this post, I can shed some light on this subject and steer you in the right direction on getting started and not being fearful.
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Estate Planning Basics
Estate planning is something that we all know we SHOULD do but it’s something that so many people either put off or they just totally ignore it all together. It’s a sad fact of life that none of us are going to get out of this alive. Death is part of living and we all have to face it at one time or another. Death affects the young, the old, the sick and the healthy. So, if we all know it’s coming, why do we put off planning for it? Well, because it’s scary…plain and simple. But it’s also the most loving thing anyone can do for their loved ones. Why not make the most difficult time as easy as possible for the people we love? We can all make this sad part of life a little bearable for our family with some estate planning basics and a little preplanning.
Not Sure if You Have an Estate?
Believe it or not, you do. Everyone has an estate. An estate comprises everything that you own…your home, car, checking/savings accounts, real estate, furniture, life insurance policies and everything else you own.
Estate planning isn’t just for the wealthy. It’s for everyone and it’s just as important to people with modest assets as it is to the wealthy. Sometimes, people with modest assets have the most to lose, so it’s imperative that we all do this to ensure that our precious families are taken care of after we’re gone.
Life Insurance
I started with this one because I feel it’s at the top of the list in regards to importance. I’ve actually heard people say that they are afraid to buy life insurance because if they do, they might die! What???? Yes, we are all going to die, hopefully, later rather than sooner.
Ask yourself this…If I died tomorrow, how would my family get by? How would they pay the bills, make ends meet? Life insurance is VITAL for every household…Period!
If you are a spouse, have dependent children or have anyone else who relies on you financially, you need life insurance.
If you are a stay at home mom that cares for dependent children, you NEED life insurance. Think about it. A mother wears many hats. Your husband would have to hire someone to take care of the children and the home if you were gone. So, please don’t underestimate your value as a SAHM just because you may not bring in an income.
My favorite financial guru, Dave Ramsey, says we need 10 times our yearly income in life insurance. So that means if you make $50,000 a year, you need $500,000 in life insurance to take care of your family after your gone. This will enable them to not have such an abrupt change in lifestyle and affords them time to make life changing decisions and deal with grief.
Dave also strongly recommends that you get life insurance, yesterday. Meaning, this is NOT part of your debt snowball. It’s not something that you should put off. We never know what will happen tomorrow so do it as soon as possible.
What Kind of Life Insurance Should You get?
This is a no brainer. Term Life Insurance is hands down the best and most affordable. The difference between Term and Whole Life Insurance is big. With Term, you’re just paying for insurance. It’s extremely affordable. Obviously, the younger you are, the more you can get at a low price. If you smoke, it will be a little more. It also has an end date. Meaning, you can take out 10, 20 or 30 year policies. (You can renew at a higher rate later on, if needed.) Even so, it’s the most economical way to go.
With Whole Life, you’re paying for insurance but it also accumulates a cash value. Sounds great, right? Wrong! While it can be retained for the life of the insured, Whole Life insurance tends to be a lot more expensive than Term. Cash value is also a big selling point, but the thing is, when you die, only the death benefit is paid. The insurance company keeps the cash value.
The important thing to remember here is do not use an insurance policy as a savings vehicle. You can do that on your own.
Buy low Term and do your own investing and you’ll come out way better in the long run.
Life Insurance is No Longer Needed When…
Life insurance is no longer needed, usually, when you no longer have dependents that rely on your income. That means that you should be able to self insure when your children are grown, you no longer have a mortgage and you have saved for retirement. If you would like to carry a small amount, just enough for burial, that would be fine too.
Who Needs a Will?
Everyone needs a will!! Yes, everyone!
A will is a document that states your final wishes. It sets forth your wishes regarding the distribution of your property and the care of any minor children.
According to a 2015 Rocket Lawyer estate planning survey by Harris Poll, 64% of Americans don’t have a will. Of those without a plan, about 27% said there isn’t an urgent need for them to make one and 15% said they don’t need one at all. Procrastination can be very costly, especially with estate planning.
Why Do You Need a Will?
A will gives you complete discretion over the distribution of your assets and it lets you decide how your belongings, such as family heirlooms and any assets you have, should be distributed.
If you die without a will or an estate plan, you can be sure that the state you live in will have one for you and you and/or your heirs may not like it. Depending on your state, your assets may be distributed according to that states probate laws. If you’re married and have children, your assets would be divided up equally among your heirs. That means your spouse might only receive a fraction of your estate, which may not be enough for them to live on.
If you have minor children, you can decide who you would like to provide for their care. I would much prefer me over the State, in deciding who’s going to get my kids, should something happen to me and the other parent.
Sometimes, the simplest things have torn families apart over something so simple, like who gets grandpa’s watch or grandma’s sewing machine. It doesn’t have to be this way. Nip it in the bud and take the time to go over and cover these estate planning basics for those you care about.
How To Get a Will
If your estate is substantial, I would advise consulting an attorney. Usually, the larger the estate, the more complex it is.
If you are comfortable taking care of it on your own, there are a number of ways to do this that are relatively inexpensive.
A holographic will is entirely hand written and signed by the testator, the person who makes the will. Make sure your state recognizes this kind of will and what kind of requirements there are.
My husband and I went through LegalZoom. You purchase the kit for your state. It had everything we needed, as our estate is fairly basic. We have no minor children at home any longer, but when we did, there was a specific will in the LegalZoom kit that provided for this.
Amazon also has basic Will Kits, like this one below. It’s very simple, easy to understand, easy to fill out and comes with all the basic forms you need to get started.
Do a little research and decide what is best for you, your family and your budget. The most important thing is to just do it.
Power of Attorney
A power of attorney is a legal document that allows you to appoint another person to take control of your affairs should you become unable to effectively do so.
In estate planning, a durable power of attorney allows an agent (i.e. a spouse or adult child) to manage all of the affairs of the principal (you), should they become unable to do so. But what it does not have is a set time period, like most non durable power of attorneys and it becomes effective immediately upon the incapacitation of the principal. It expires upon the principal’s death.
This document is easy to come by and it can give your spouse the authority to conduct your business if you can’t do so. I believe you can find one online that you can download by googling “free durable power of attorney”. Just make sure you select one for your state.
The medical power of attorney works basically the same way regarding medical wishes, should you become incapacitated or unable to make decisions on your own, pertaining to healthcare. You are able to state exactly what your healthcare preferences are and make specific limitations on the agent’s (whoever you choose for decision making) decision making authority.
Where To Put This Information
Once you have these 3-4 basic steps in place, you need a safe place to put them. Nothing could be more frustrating for your loved ones than to have to hunt for your will, life insurance policies and power of attornies. The best thing to do is to put all of this information together and let someone you trust know where it is. Maybe putting everything in a file labeled “Legacy File” or just plain “Wills and Life Insurance”. Putting your information in a safety deposit box is ok, but someone will need to know where the key is. It is also a good idea to have your account ID’s and passwords written down or stored somewhere so that who ever you leave in charge will be able to step in to take care of your business, should you not be able to.
Off To a Good Start
If you take care of these three basic necessities, Congratulations! You’re off to a very good start! As you dive deeper into estate planning, your plan will begin to develop and will probably expand as your life and needs change. Your finances will probably improve, your children will grow up and your assets will probably change.
We’ve changed our wills a few times over the years to reflect what is happening currently. The wills that we made 20 years ago look nothing like the ones we have today.
By doing some estate planning basics, you and your family will have some peace of mind. This is one of the most loving, thoughtful and considerate things that we can do for our families and loved ones.
Have you taken the time to take care these estate planning basics? I’d love to hear from you. Leave your comments below and be sure to subscribe to Love To Frugal, so you never miss a post! You can also follow me on Pinterest, Facebook & Instagram for more frugal living, money saving tips!
