Estate Planning and Asset Protection Essentials

1. Draft a will

Many people put off writing a will (more than half of you don’t have one) because they believe it will be costly or difficult, that it is unnecessary because their possessions will automatically pass to their spouse or children, or simply to avoid thinking about their own death. This is a big mistake. Writing a will is critically important for all adults regardless of wealth, marital status, or age. Even if you don’t have a large estate, someone will need to handle your financial affairs after you die, and it’ll be easier if there’s a document spelling things out. This is especially important if you have minor children. Your will should name a guardian for anyone under 18. You’ll also want to name a trusted person as executor of your estate and backups. If you have young children, you can also create a minor’s trust — assets you leave them will be held in the trust until they reach your state’s “age of majority” (18 in most states).

A simple will can be done here and if you have significant assets or complicated situations you should consult an attorney for the job. To find a specialist, check with your state bar association or look for a local estate planning counsel. Once done, review your will every two to three years, or whenever there’s a life event, such as a birth, death, marriage or divorce.

2. Look into trusts

If you establish a living trust, your estate can bypass probate and its associated costs and hassles, but you probably need one only if your estate is worth more than about $2 million, you own real estate in more than one state or you want to keep the terms of your estate private. Otherwise, you might want to create a trust within your will to manage your assets after your death. This is a good idea if you fall into one or more of these categories: 1) You have minor children and don’t want to leave property directly to them. 2) You have adult children and aren’t confident they can responsibly manage their inheritance. 3) You want to protect your assets from ending up with a creditor or a child’s ex-spouse. Setting up a trust in a will should be included in a lawyer’s will-creation fee, but if you’re having it done separately, expect to pay $1,000 to $3,000.

3. Assign a power of attorney

This authorizes someone to handle matters if you’re unable to act on your own behalf. There are two types: financial power of attorney, which lets someone take care of things such as writing checks; and medical power of attorney, which allows someone to make decisions about your health care. Both of these documents can be completed on our site doityourselfwill.com . Without these, your loved ones might have to go to court to handle simple estate matters if you were incapacitated.

Decide whether you want a standard durable power of attorney, or a “springing” power of attorney that requires a doctor declare you incompetent or incapable before it’s active. Update this document about every five years even if it’s correct, since officials sometimes are hesitant about accepting an older form.

4. Set up an advance directive

Basically, this document lays out your end-of-life preferences, such as whether you’d want a feeding tube or to be placed on a respirator, if necessary. Like those we provide on doiyourselfwill.com, it can incorporate related requests such as a living will (explaining when you’d want to be allowed to die), and medical power of attorney. Creating these doesn’t require an attorney and some states require you to have this document witnessed, so make sure you follow the rules to make it official.

5. Examine your life insurance

If you have children dependent on you financially, you need life insurance to cover lost income after you die. Generally, term life is your best bet and a good rule of thumb is to have enough life insurance to equal 10 times your annual salary. If you’re interested in permanent life insurance (such as variable or universal) with a built-in savings component, speak with your financial planner to find the right coverage. Remember, the beneficiary of your life insurance is named in that policy, not in your will.

6. Update your beneficiaries

You may not realize it, but beneficiaries on your 401(k), insurance policies, retirement accounts and investments trump who is named as beneficiaries in your will. So even though you’ve left everything to your children in your will, if your ex-wife is still listed as your IRA beneficiary or the beneficiary in your life insurance policy, then it all goes to her so review your designations about every two years or upon life events, such as the birth of a child. Also, make sure to choose a contingent/alternate beneficiary should the primary not outlive you. Otherwise, if your primary beneficiary dies before you do, your funds will go to your estate, which can create tax and legal issues. It’s not unheard of for people to leave seriously outdated beneficiaries.

7. Find and organize your paperwork

Do you know where your tax returns, insurance policies, brokerage and 401(k) statements, and mortgage paperwork are? If you’re not sure, you can be sure your loved ones won’t be able to find them when they need to, causing significant problems when it comes time to settle your estate.

8. Keep it in the right place and let others know

Never keep your original will in your safe-deposit box. Some states seal the box when someone dies until the estate has been settled. Yes, you can keep a copy of your will in the safe-deposit box, but the original belongs with your lawyer or in a fireproof box at home or in your office and others must know where you put it. You may even want to scan all your important financial paperwork and keep a virtual copes in the cloud, just be sure to share access with your closest family member, so he or she will be able to get in.