What’s the Best Way to Take Care of Your Loved Ones After You Die?

kid-airWorking to get out of debt isn’t just something you do for yourself. You’re making a better future for the people you love most. A part of that future — a part no one likes to think about — is what happens to your loved ones after you’re gone. It’s vital to put a plan in place to provide for your loved ones after you die.

Life Insurance: Do You Need It?

When you’re young, especially if you have a family, and you haven’t built a lot of wealth, it’s crucial to purchase adequate life insurance. Also, if you’re older and you don’t have enough saved to take care of your surviving spouse or you’d like to leave something to your kids and grandkids, go ahead and buy life insurance. The insurance industry’s rule of thumb is to buy a policy with a benefit equal to seven to 10 years of your income.

As you decide how much coverage to purchase keep big expenses in mind like college education for your kids or your own funeral expenses. Also, consider debts that you have to pay off in the event of your death, including your mortgage. To keep costs low purchase term life insurance and use the money you’d save on a whole life premium to pay down debts or to make smart investments. Once you have a large enough estate you no longer need life insurance unless you buy it for a specific purpose such as to pay taxes on an illiquid asset.

Will vs. Living Trust: Which Is Right for You?

family-walkingIf you have minor children it’s essential to have a will that states your wishes regarding their upbringing and guardianship. In some circumstances a living trust might work better for your estate. It’s important to understand what living trusts can and can’t do for you.

What Living Trusts Can’t Do

Living trusts do shield your estate from probate costs but keep in mind that most states don’t require estates to go through probate unless they have a certain value. Check your state’s legal limits to determine whether you need to worry about probate or not.

No living trust can perfectly shield your estate from a disgruntled heir, although trusts are tougher to challenge in court than wills. Also, deeding property to a living trust won’t make it easier to qualify for Medicaid if you need assisted living.

What Living Trusts Can Do

If any of these circumstances apply to you consider setting up a living trust:

  • You have a large estate. If you have considerable assets that you’d like doled out in a specific way set up a living trust. For example, pay out assets to heirs when they reach a certain age or complete a certain action like finishing college.
  • You own property that’s not easy to transfer upon death. If you co-own a home with your spouse and you die, your spouse will automatically own the house. Likewise, if you have investments or insurance policies with designated beneficiaries those beneficiaries automatically receive the funds without probate concerns. Alternatively, if you own a home or vacation home and there’s no other name on your deed find out whether the state in which the home is placed offers transfer-on-death deeds. If not, a trust could help your family avoid probate in not just one but multiple states.
  • You want privacy. Unlike wills living trust records remain private unless a court intervenes. Probate records always remain public so use a living trust to maintain confidentiality.

What About Funeral Expenses?

girl-rosesEven when you have life insurance benefit payments don’t always arrive in time to pay for your funeral. Many funeral homes won’t lock in current prices even when you prepay, which means your family could owe money after the memorial. Instead of pre-paying or buying burial insurance set up a payable-upon-death bank account in the name of a trusted heir. Then, keep just enough in the account to cover your funeral expenses.

Don’t Skimp on Estate Planning

Paying for term life insurance and setting up a simple will or trust won’t derail your debt repayments. Unfortunately, if you die without these tools in place your family could face terrible financial burdens. Lock in the basics right now and save more complex estate planning for after you accumulate wealth. Your loved ones deserve a secure financial future.

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