Estate Planning for Young Professionals
Believe it or not, even young professionals need estate planning. While the idea of dying or getting into an accident can be difficult to think about, one thing is certain you need to get some essentials out of the way to ensure that you and your family is financially sound should something happen.
Here is a list of a few essential estate planning documents and policies that you should have, and if you don’t, you should get them as soon as possible.
Power of Attorney – There are Two Types You Need
Durable Financial Power of Attorney
This is important in the event you are ever injured in an accident or become extremely ill. In the instance that either of these should happen, this form will allow you to give power over your financial affairs to a designated individual while you are incapable of attending to them yourself. The person who you elect, called an agent, can be a family member, friend, or even a private fiduciary. Just make sure that you choose someone who you trust with your finances. The duties of your agent can vary greatly, from paying bills, to taking care of your home, or even dealing with your investment accounts on your behalf.
Health Care Power of Attorney
This is another important form of power of attorney to have in place in case you have a medical emergency and cannot make health decisions on your own. This form gives your elected agent the power to make health care decisions for you if you are incapable. Again, it is important to trust your elected agent, as their responsibilities can range greatly from having to decide on housing arrangements to following your wishes for life sustaining treatment.
Life insurance is critical to protect your loved ones in the event that you passed away at a time when they are relying on you financially. This type of insurance will pay the policy benefit out to your survivors upon death (note: the benefit is almost always tax free) and is vital for a number of reasons. First, it can oftentimes be used to cover various final arrangements, which are definitely not cheap. More importantly though, it can provide a grieving family time before needing to get back to work. And lastly, life insurance can be used to pay outstanding debts on a home, for future college expenses, or simply to take care of a family if the primary breadwinner were to pass. When looking at policies keep in mind that term insurance is like ‘renting’ a policy, once the term or period of years is up (i.e. 20 years) you are no longer covered and have no money to show for all those premiums you paid. It is, however, usually the cheapest form of life insurance. Whole life (which there are numerous kinds) is like ‘buying’ insurance, you pay the premiums for life and it becomes not a matter of if you were to pass, but when.
Last Will and Testament
A last will and testament is crucial. This document allows you to specify in great detail what will happen to your assets and personal property upon your death. A will is more suitable than a trust simply because your level of assets and personal property have not reached the level of complexity that is needed for most trusts. Not having a will means that your estate will have to go through probate and will be subject to state intestacy laws. This can be an arduous process, one that is usually lengthy, oftentimes expensive, and ultimately runs the risk of having your assets go to people or places that you had not intended.
It is not fun to think about dying and leaving your children and other dependents without parents and caretakers, but it is something that needs to be discussed so that in the unfortunate event that something does happen, they are taken care of and by people that you know and trust. Be sure to include in your will who does and does not get guardianship in the unfortunate event of a death.
Most 401(k)s and IRAs have the option for you to designate beneficiaries when you open the accounts. Be sure that you have designated beneficiaries and to update them in the event that someone has passed away or if your intentions have changed. The person(s) who is designated as the beneficiary will be the one who gets the assets from that account, even if you have written in your will to have someone else get them. A beneficiary designation overrides a will and also keep in mind that if you are married the beneficiary of your retirement plan will automatically be your spouse, but you should still designate them specifically on your account.
This type of planning is never fun, and will most likely turn out to be just a precaution, but if something were to happen, having these documents in order will help your loved ones while dealing with your passing.
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