You may think that estate planning is only for older people who have a lot of money. But there are a few important estate-planning moves to make at every stage in life to protect your family and make sure that your assets go to the people (or charities) you choose. Here are some key estate-planning moves at each life stage.
Getting Started in Your Career
As soon as you have a job with benefits, you need to make a few estate-planning decisions — even if you aren’t married and don’t have kids.
Beneficiary designations. If you have a 401(k) at work or other retirement-savings plan, think about your beneficiary designations. If you don’t have your own family yet, you may want to designate your parents or other relatives.
Life insurance. If anyone is depending on you financially, then you should have life insurance. But you may have life insurance through work even if you aren’t married and don’t have kids. When choosing the beneficiary for this policy, think about who would have to pay funeral expenses and your debts or other bills if you were to die. For example, you can name your parents as your life insurance beneficiaries when you’re starting out, and then switch to your spouse after you get married.
Health-care documents After you turn 18, your parents can’t automatically access your medical records or make medical decisions on your behalf without special legal documents. A health care power of attorney (also called a health-care proxy) can designate your parents as “medical agents” to make medical decisions on your behalf if you’re unable to do so yourself. If you’d like your parents to be able to receive information from health-care providers about your health and treatment, you’ll need to sign a HIPAA authorization form.
Getting Married or Buying Property Together
You’ll have some new estate-planning needs after you get married or if you buy property with a partner. In that case, someone is starting to depend on you financially.
Beneficiary designations. Review your beneficiary designations on your retirement-savings plans and other accounts. If you had your parents as your beneficiaries, you’ll usually want to switch the beneficiary designation to your spouse. (And don’t forget to change them again if you get divorced.) Your beneficiary designations supersede your will for those accounts.
Life insurance. If you already have life insurance, you’ll usually want to switch your beneficiary to your spouse. And if your spouse depends on your income to help pay for the mortgage or other expenses, then you may want to buy more life insurance.
Have a will. You and your spouse may hold some property as joint tenants with rights of survivorship (such as a brokerage account or a house), and in that case the property will automatically pass to the surviving spouse. Retirement accounts and life insurance will pass to the beneficiary you designate. But other property will pass according to state law, unless you specify otherwise in a will. Your will lets you decide who inherits your assets and gives you more control over what happens to the money. If you have a partner but are not married, it’s particularly important to have a will because otherwise your partner won’t automatically inherit the property.
Healthcare proxy. Have a healthcare proxy so your spouse can make medical decisions on your behalf if you can’t yourself. The healthcare proxy is especially important if you have a partner and are not married; otherwise, that person may have no legal authority to make health-care decisions on your behalf.
If you have children, you really need to do some estate planning to make sure that there will be enough money to support your kids and to designate who you want to take care of them if anything happens to you and your spouse.
Life insurance. Your life insurance needs usually take off when you have kids. Consider how much it will cost to support them until they’re on their own. See Life Insurance Check-Ups for Every Life Stage for more information about calculating your life insurance needs and buying additional insurance.
Will and guardianship. Update your will to include your children and to designate a guardian for them if you and your spouse both die. You can also include instructions for the guardian, and you may want to set up a trust with more details for how your heirs will inherit the money. This could be a good time to meet with an estate-planning attorney to help determine the best legal documents to make your wishes known for your family. Be sure to update your estate plans whenever you have another child.
Beneficiary designations. Review the beneficiary designations on your retirement-savings plans and other accounts.
Assess your estate-planning needs again after your kids move out and are supporting themselves. Rather than protecting your family if you die early, you may now be able to use your estate to help the next generation or build a legacy. You may now have some grandchildren you’d like to help, or may be able to afford to leave some money to charity.
Life insurance. Reassess your life insurance needs now that your kids are on their own. Do you still need the coverage to help your spouse pay the mortgage and other bills without your income? If you have a permanent life insurance policy, consider whether you want to keep the coverage or if you want to make a tax-free transfer to buy an annuity for lifetime income or to pay for long-term care insurance premiums. See What to Do With Life Insurance You No Longer Need for more information about making a tax-free transfer from life insurance to an annuity or long-term care insurance.
Review your will. Now that your kids are adults, review your will and any trusts. You won’t need guardians for them anymore, but may still want some control over how and when they inherit the money. If you have grandchildren now, think about how you’d like to include them in your estate plan. Also update your will if you buy new property or have additional assets, and especially if you’ve divorced and remarried. A trust can help if you want to leave some income to your current spouse but also leave money to your children from your first marriage. You may also be in a financial situation to be able to leave some money to charity, too.
Beneficiary designations. Review your beneficiary designations to make sure your accounts continue to pass to the people you want. Understand the tax rules for inherited accounts when choosing your beneficiaries. Your spouse can roll an inherited IRA into his or her own account and postpone required minimum distributions until he or she turns 70 ½. Non-spouse beneficiaries (such as your children) can roll over the money to an inherited IRA and spread withdrawals over their lifetimes, but they usually need to start taking required withdrawals starting in the year after they inherit the account. For more information, see the IRS’s Required Minimum Distributions for IRA Beneficiaries.
After you retire, your estate-planning needs change yet again. This can be a good time to think about your legacy and what you want your estate to accomplish. It’s also important to consider who will make financial and medical decisions for you if you’re unable to do so yourself as you get older.
Beneficiary designations. Review the beneficiary designations on your retirement plans again. Make sure your spouse has enough money to live on in retirement, and you may also want to help out your kids, grandkids or a charity.
Life insurance. If you still have life insurance, review whether or not you still need the coverage or if you want to start taking withdrawals or make a tax-free transfer to an annuity for lifetime income or to pay long-term care insurance premiums.
Review your will to consider grown children and any grandchildren. When you have an idea of your financial footing in retirement, you may also want to leave some money to charity.
Health-care documents. Have a health-care power of attorney to designate someone to make medical decisions on your behalf if you’re unable to do so yourself. Also consider a living will specifying your wishes for end-of-life care.
Power of attorney. You may also want to create a durable power of attorney, naming a trusted relative to other person to make financial decisions on your behalf if you’re unable to do so yourself.
For help with estate planning ask your financial advisor or CPA to recommend an estate-planning attorney with experience in your state. You can also find one through the American College of Trust and Estate Counsel or the National Academy of Elder Law Attorneys.
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