Excuse #1: You’re not going to die.
Excuse #2: You’ve been too busy.
Excuse #3: You can’t stand thinking about a future that doesn’t include you.
If you’re coming up with these or other reasons for not planning for death, you’re in good — if not smart — company.
Just over one-third of Americans have a will, and fewer than half have any estate-planning documents at all, according to a 2011 survey conducted for EZLaw.com. “People don’t want to think about dying. They’re uncomfortable with the topic,” says Danielle Mayoras, coauthor with Andrew Mayoras of Trial & Heirs (Wise Circle, $20). “For that reason, they don’t do anything about estate planning.”
But making arrangements for your final days and beyond isn’t just about helping your family through difficult times. It also lets you designate representatives to make decisions about your care, withdraw money from your accounts to pay your bills and celebrate your existence in exactly the way you want — even if that means letting you take your last ride, to the cemetery, in a less-than-likely vehicle.
1. Write a will (put it in writing)
Die without a will and you let complete strangers decide how to split up your estate and raise your children. It’s called dying intestate, an act (or failure to act) that leaves the divvying-up process to state law. In lieu of a will, the court gives first dibs to a spouse and children, followed by other relatives. If you have no family, your property goes to the state. And unless you appoint a guardian for your minor kids in a legally executed will, their future will be determined by the court.
Don’t let those screw-ups happen….If your circumstances are at all complex, you’ll need a lawyer, who will charge about $300 to draw up a simple will and $1,000 to $3,000 for an estate plan that involves a will and a trust.
Be sure to update these documents periodically to account for major events, such as the birth of a child. If you don’t, you could create the very mess you were trying to avoid.
2. Consider life insurance (provide for basic needs)
You can skip life insurance if you have no one to support or you have enough money socked away to provide for your spouse or partner. Otherwise, you’ll need enough coverage to meet your family’s expenses when you can’t.
To figure out how much life insurance you need, estimate what it would cost to pay off your debts, such as a mortgage and car loans, and to fund savings goals, such as college for your kids. With these needs accounted for, your family may be able to live comfortably on about half of your current pretax income. Divide that amount by 5% to determine how much you’ll need. So it would take $1 million to produce $50,000 of annual income.
To calculate your total death-benefit needs, add up the amounts for paying off your debts, funding savings goals and providing annual income. But don’t take that number as gospel, says Tim Maurer, a fee-only financial planner in Hunt Valley, Md. “It can be geared up or down, depending on your situation.”
Term life insurance, which carries a fixed premium over the life of the term (usually 20 years), can be surprisingly affordable, even for large amounts. For instance, a 35-year-old male nonsmoker might pay $470 a year for a 20-year term policy carrying a $1 million death benefit.
3. Establish 3 critical end-of-life documents (delegate control)
“A lot of people think that estate planning is only for when they die,” says Danielle Mayoras, of Trialandheirs.com. “It’s also to take care of us during our lifetimes.” To help family members carry out your wishes if you cannot, provide them with these documents:
A durable power of attorney lets your agent manage your finances and legal affairs.
A release-of-information form gives doctors permission to share your medical records with designated representatives.
Advance directives. A durable power of attorney for health care names a representative to make medical decisions on your behalf. A living will specifies the medical treatment you do or do not want at the end of your life.
4. Avoid probate (pass it on with less mess)
To listen to some people, you’d think letting your estate go through probate was worse than death itself. Don’t take their word for it. The probate process, by which your executor settles your debts and disburses your property, could be a simple matter of filling out forms and paying a few hundred dollars in filing fees. But it could also be a months-long ordeal that ties up your estate and costs thousands of dollars in legal fees and other expenses.
Before you start fretting about the latter scenario, consider that some property isn’t subject to probate at all. Life insurance death benefits and the money in retirement accounts pass directly to your designatexd named beneficiaries, and property owned jointly with the right of survivorship — say, a house or a car — transfers automatically to the co-owner. You can also arrange for bank and other accounts to be transferable or payable on death, giving the recipient immediate access to the money. [Of course, smart money will often handle such property along with other planning measures thorough a expertly crafted revocable trust.]
Take enough off the plate and your estate could qualify for small-estate treatment, which is much simpler than regular probate, says Mary Randolph, author of 8 Ways to Avoid Probate (Nolo, $22). Most states offer simplified probate or waive it altogether for estates valued at $200,000 or less, depending on the jurisdiction. (Find out how your state handles probate.)
One good reason to avoid probate: privacy. Probate puts your affairs in the public record and requires that your executor notify your relatives and give claimants time to challenge your will. If you don’t want snoops looking at what you left, or your prodigal child fuming at what you didn’t leave, make other arrangements to avoid probate.
By Jane Bennett Clark, Pat Mertz Esswein and Lisa Gerstner, January 2012. http://www.kiplinger.com/article/retirement/T021-C000-S002-8-smart-estate-planning-steps-to-die-the-right-way.html