We are only ten days in to 2018, and unfortunately, my inner circle has suffered many losses already. Some were expected while others, were very sudden and very devastating. Some may find this topic uncomfortable, but today’s discussion is incredibly important. Here are some essential steps you need to take TODAY, that will lessen the burden on your loved ones after you die.
This is the obvious first step. I will save the detailed post on life insurance for another day. But I will say, that regardless of your age, you should be carrying some amount of life insurance. I’m sure many young people are glossing over this, because it doesn’t seem like some thing a 25 year old needs to worry about. Having lost a close personal friend at that age, trust me when I say, don’t entrust your family’s ability to provide a dignified farewell to the kindness of strangers on GoFundMe. Moreover, funeral costs severely damage your family’s financial stability if unplanned. Don’t put your family in that position. For a young, single person, as little as $10,000 can allow your family to cover your final expenses, and costs about as much as your first at happy hour. Many workplaces offer this as a fringe benefit free of charge.
The amount of life insurance that you need depends on several factors. For a married couple without children, I’d recommend a minimum of $250,000 each, which should cost around $35 a month. If you have children, I’d recommend getting your coverage up to at least $1M for each minor child. If these numbers scare you, don’t worry! Do the best that you can, with the resources that you have available, and remember that something is better than nothing.
Without a will or trust in place, any property that you hold when you die would likely end up in probate court. This can be incredibly costly and time consuming for your family. Your estate planning document should update with each life change. This includes purchasing a home, getting married, children, acquire investments, etc. This may sound cumbersome, but the costs for your family to fight for your assets in probate court are even greater.
Access to Financial Information
At some point you need to have “the talk” with your most trusted family members or friends. These are the people who you know will execute your wishes, and be adept at handling the business matters when you die. For most people this is a spouse, sibling, or best friend. Whomever you choose, put that decision in writing in a durable power of attorney. This document allows you to specify and agent, or proxy, to handle your financial affairs should you become incapacitated. This is not the same as a medical POA, which we’ll discuss below.
Consider maintaining a binder or thumb drive with copies of your important documents, account information, most recent tax returns and instructions for your proxy. This is also a useful strategy for emergency planning. There’s no telling when a major emergency may force you to leave your home. Having something like this in place ensures you’d ave everything you need, in case of an emergency.
Find a graceful way to broach these conversations with your family members about their own affairs. If you’re their “person”, it doesn’t hurt to have at least a basic understanding of their wishes, and where to look for their important documents. For couples, if you are the primary manager of the household finances, would your partner be able to pick up where you left off? Take some time to evaluate whether they have relevant log-ins, knowledge of accounts, and ability to manage things without you.
In case you ever become mentally incapacitated, there are two documents that would allow you to state your wishes for your end of life care.
Living wills are written statements that allow you to explicitly state what type of care you do, or do not want. Medical professionals will honor this statement (unless state law or medical regulations disallow it) should you become mentally incapacitated.
A Durable Power of Attorney allows you to elect someone to make medical decisions for you and oversee your medical care. This usually allows your elected agent the flexibility to make decisions for you, while maintaining the integrity of your wishes. In some states medical POA and financial POA can be assigned in the same document. Check on your state laws to determine your needs.
An important note here: your financial proxy and medical proxy don’t have to be the same person. Carefully evaluate the people in your life, and what role best suits them. You may have a child who would handle your financial matters appropriately, but would not execute your medical care as you wish, due to their own moral differences.
If you are a parent, do you know who will take care of your minor children should both of you die? Will the Godparents you selected be willing and able to step up in that way? Who are the other members of the village that would support them? These are all conversations that you should be having (if you haven’t already).
If you have a small business, you should have a succession plan in place. You can allow someone else to take over ownership by setting up a trust. If you intend for your business to cease operations after you die, you should at least have a plan in place for ensuring that business activities are closed properly. Sole proprietors can run into issues if there’s no one else authorized to handle certain transactions.
If you are in a partnership, your partnership agreement should explicitly spell out what happens in the event of a member’s death. Common options include liquidating the business and distributing the proceeds, taking on the heirs of the deceased as new partners, or buying out shares from the heirs of the deceased partner. Refer to this article for more detail on some options for partnership succession.
What steps are you working on this week? Let me know in the comments.
If you have recently lost someone, I pray that you and your family find peace through your grieving process. Although this is a blog about building financial wealth, we should remember that wealth isn’t just material. Your health and relationships are most important things you have. Remember to call your parents, make time for friends, laugh with your significant other, and be kind to your body.