Planning for death isn’t something that anyone looks forward to. If you give this subject just a little wise attention, though, you can do a great deal to protect your loved ones and provide for them after you’re gone — no matter when you pass on. This planning doesn’t even have to be morbid; the same smart financial moves will protect you if you live a long and happy retirement. Enjoying your later years and sharing as much as possible with your descendants after you pass away: These are the key goals of end-of-life financial planning.
The six basic tips collected here are the essentials that you need to consider to make things easier for your family when you’re gone.
1) Get Life Insurance Coverage
Life insurance is a key part of long-term financial planning, and it’s useful to more people than you might think. A lot of individuals neglect this part of their finances, thinking that there’s no great need for life insurance if your situation doesn’t call for it. If you’re healthy, single, and don’t have any dependent children, you may think your other financial resources will cover any need you might have, up to and including unexpected death. But life insurance protects you and your relatives in a host of ways, some of which you might not be considering.
A life insurance policy can be a huge boon to your family if you have anyone relying on you partly or entirely for their living expenses. This includes spouses as well as children. Life insurance makes a perfect substitute for the income your family loses if you die unexpectedly. Even in a household where both parents bring in significant earnings, life insurance can be vital. Childcare costs can climb precipitously after the loss of one parent, and the surviving spouse may want to or be forced to reduce the amount of time he or she works. Life insurance coverage can deliver financial security in a situation where it would be otherwise impossible to achieve.
Mortgage life insurance policies are also something to consider. They will cover the remaining price of a mortgage after a death and will ensure your family doesn’t have the huge debt of a mortgage to repay.
As to the sort of situation discussed above, when you have no dependents that are financially reliant on you, life insurance can still be a boon. A policy can help resolve any debts that might be left behind when you die, or simply cover the costs of your funeral and settling your estate.
Life insurance comes in two basic forms: term and whole life. Term life insurance makes a good fit for most individuals, offering the sort of short to medium-term financial assistance described above. A whole life policy is a good choice if you know that you have a long-term dependent to take care of, such as a child with special needs or a disabled spouse. Whole life insurance also offers you the option of cashing out your policy to increase your own financial stability if and when you want to.
2) Make Sure The Details Your Relatives Will Need Are Accessible
All of the financial paperwork that you know your loved ones will need after you pass should be stored in a secure but accessible location. A home safe or a safe-deposit box at your bank are good choices. This tip applies to insurance policies and financial records, but in the 21st century, you need to be thinking about online details as well. Make sure you leave behind all of the details your relatives will need to access your financial resources. This includes account numbers, PINs, online login details, passwords, and other such information. Your family may find it helpful or even vitally necessary to get fast access to your accounts and services when you pass away. They will be comforted to know that you’ve gathered all of the necessary information and left it in a place they can get to it.
3) Arrange For Power Of Attorney
One often-overlooked piece of planning for adversity is considering what should be done if you become severely incapacitated. While it’s hardly an outcome you look forward to, you need to recognize that it’s a possibility due to illness or injury. You can make wise arrangements for this eventuality by drafting an advanced healthcare directive. Key parts of this document are a clear record of your preferences, a living will, and the designation of a Durable Healthcare Power of Attorney. This is a person you trust to make your medical decisions if you lose the ability to do so.
Note that a healthcare power of attorney can be separate from a General Power of Attorney. You may want to identify someone else to fill the latter role strictly to handle your finances if you are incapacitated.
4) Plan Ahead For Your Funeral
Do you like the thought of lots of flowers at your funeral, or would you prefer your mourners to contribute to charity? Are you comfortable with the idea of your relatives buying you a $10,000 casket, or do you think they should save the money? Make your preferences known! The more funeral details you feel comfortable planning for yourself, the more trouble and heartache you can spare your loved ones. Spare them the added difficulty of making financially-significant decisions while they are still grappling with losing you.
Advanced funeral planning can be incredibly helpful because the death of a family member obliges his or her relatives to make a lot of decisions very quickly. The more guidance you can leave for your relatives, the less of a challenge this process will be for them. Remember that non-financial decisions can be just as grueling as financial ones. Give a thought to what sort of service you’d like, any preferences you have for your eulogy, the music you’d like to have played — every detail you specify in advance is one less choice a grieving loved one will be forced to tackle.
To return to financial concerns, you can also consider funeral planning to be a way to protect your loved ones after you’re gone. It’s unfortunate but true that grieving relatives are sometimes pressured to spend more than they really should for funeral arrangements. By stating clear preferences, you can discourage that possibility.
Put all the thoughts you have about your funeral down in writing and store them along with your other important documents (see above). Some funeral homes offer you the opportunity to pre-pay for your funeral. We do not recommend using such services, because there is always a possibility that your money could be lost if you outlive the business. Our recommended alternative is to open a savings account expressly for setting aside funeral funds. This can be arranged to be payable-on-death to a beneficiary you specify. Such an account will not be held up in probate, and you’re free to alter the arrangements or close the account whenever you wish.
5) Inventory Personal Belongings – Not Just Financial Assets
In the course of a life well-lived, you’ll inevitably collect some precious belongings. Sometimes these are financially valuable, like the set of heirloom silver that’s been in your family for generations. Other items, like photo albums, hold strictly sentimental value. Finding those treasures and figuring out what to do with can be a significant burden for your relatives after you pass away. Take the guesswork out of the process and improve the odds of seeing those treasures go where you want them to. Make your wishes regarding your important belongings clear, in writing. This makes it easier for your loved ones to handle your estate and also removes a potential source of friction that can make your loss even harder than it needs to be.
6) Write A Will
A lot of people avoid drafting a will for themselves out of the mistaken belief that such arrangements only matter for the very wealthy. Nothing could be further from the truth! Every adult should have a will. The need to explicitly state your intentions for your estate is particularly important if you have dependents.
If you have a spouse, providing for him or her will a top priority when you create your will. For many married couples, “mirror wills” are an effective solution. These wills specify that all assets transfer to the surviving spouse after one dies, with further dispositions (to other relatives or charities, for example) waiting until both spouses have passed.
If you die with dependents, your will can become a strong shield to protect them after you’re gone. Your will can name a guardian for your children, and this is infinitely preferable to leaving the decision up to the state. You can also use your will to pass your money and property to your children even if they are still minors when you die. The assets you want to pass on can be placed in a trust and managed by a trustee specified in your will.
Although the internet can provide tools and information to help you create a will on your own, we strongly recommend hiring an estate lawyer to ensure that your will is a secure, binding, and effective document.
