estate planning
life and disability insurances. But do you have a will? Would your spouse and loved ones know what to do when you pass? Do they know how to access your accounts and other important documents? That's why you need a legacy binder. Death planning is, unfortunately, the high priority item that rarely gets done before your loved ones need it. It's probably due to a combination of thinking you will have plenty of time to get to it and avoiding thinking about your demise.
Start Your Legacy Binder with a Letter of Instruction
Your loved ones will reel from your death. Hopefully, you are adequately insured so they can take enough time to grieve and sort out your matters (and pay for counseling). Do you want them to be mired in tracking all your accounts, passwords, and other important paperwork? I'm guessing no. Make those logistics the easy part of dealing with your death. How? I recommend creating at the minimum a “Letter of Instruction.” This is an informal document (not the will) to guide the executor of your estate and your loved ones on important information that is in addition to your will. You can create this document yourself to ground your loved ones in all of the essentials.
What goes in a Letter of Instruction?
Make sure it includes the following information:
- Legal documents. Specify the location of all important legal documents they may need to handle your estate. These include the will (the original copy), social security card, birth certificate or passport, marriage and/or divorce papers, property deeds, automobile titles, etc.
- Financial information. Provide a list of all your financial accounts and account numbers: bank accounts, brokerages, retirement accounts.
- Passwords to your accounts. Make sure to include passwords for financial information, email, social media. I highly recommend using a password manager such as LastPass. This is what we use. In case you didn't know, Facebook allows you to name your legacy contact.
- Burial instructions. Tell your loved ones the exact details, including the name of the cemetery and plot location. Or if you desire to be cremated, be sure to include instructions as to how you want your ashes distributed. If you are a veteran, you may wish to look into being buried at a National Cemetery.
- Contacts. A list of family members (and your relationship to them–basically a family tree) and friends you would like to be notified of your death. Phone numbers and addresses are helpful in addition to email addresses.
- Policies. List all life insurance policies. Keep a copy of the policy page and the beneficiary designations. We use LastPass to store all our important policy pages.
- Tax information. Give the location of recent income tax returns and any necessary accounting information.
- Debts. Make a list of any outstanding debts.
- Professional contacts. Provide contact information for your CPA, attorney, insurance agents, etc.
The In Case of Emergency Binder
If you're like me, you'd be more likely to do this with a fill-in-as-you-go workbook:
Chelsea of Smart Money Mama's developed this In Case of Emergency Binder (ICE) for her own family to get organized in the event of, well, an emergency. Emergencies include not only death, but a natural disaster or severe illness. I purchased her ICE binder last year and, of course, have been slow to finish this important document. Only a few weeks ago did I finally get in touch with an attorney about having our estate plan documents reviewed since we moved states over a year ago.
Make this one of your family's financial goals for 2019. And once it is completed, store this document in your estate plan binder and digitally. LastPass is not only a password manager for your whole family but it can store digital documents securely.
Final Thoughts on the Importance of a Legacy Binder
Whether you purchase a pre-made legacy binder, work with a legal professional to create one, or design your own, get it done. Not next year, not in the next six months. Make a commitment to yourself and your family to start your legacy binder right away. No one wants to think about their death, but it is a fact of life. A legacy binder protects your loved ones and should offer you the ultimate peace of mind knowing that your wishes will be respected and your loved ones will be cared for after you're gone.
Is your family prepared in the event of your untimely death? If not, get started!
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Eggy on the way, we've had to do some estate planning. I'll be honest: I found trying to understand and interpret estate planning and legalese way more challenging than learning personal finance. If you feel the same way, then you'll want to stay tuned for my series on estate planning in “plain English” starting with this post. Today, I'm going to discuss the estate plan basics and define some basic terms you need to become familiar with.
The Vocabulary of Estate Plan Basics
Below, you will find some of the most frequently used terms in estate planning. In addition to breaking them down in simplified English, there are also helpful links for additional reading.
Know Your Situation
Before we dive into the estate plan basics, the first thing you need to do is take inventory of yourself. Specifically, you need to understand your personal situation. Who exactly are you looking to protect? Someone who is single is going to have a very different estate plan than someone who is married with a blended family.
Let's start with me for an example. Our situation is more complicated than the common “(first) marriage with kids” scenario, meaning first marriage, no prior divorce and all the kids are theirs.
Our situation: We are not married. I've never been married. M has been married before and has a son from that marriage. Eggy will be our first child together. We do plan on getting married, just not in the near future.
We just finished drafting wills, power of attorney, living wills and healthcare proxies with a lawyer in NY. Please note and keep in mind that estate laws are state specific and some or all documents will need to be updated/redone if you move states and as your reach life milestones.
Last Will & Testament
All couples with minor children need a Last Will & Testament or Will. Why? Because in the Will you name a guardian in the (highly) unlikely event both you and your spouse pass before your kid(s) are adults. Otherwise the court makes that decision for you!
So, if you don't have a Will (and both spouses each need their own wills, they generally mirror each other), then you are basically saying you're OK with having the court decide guardianship for your minor children. I am pretty sure you wouldn't be OK with this.
You can also name a backup guardian in case the first named guardian cannot carry out the duties.
Executor
Your executor is also named in your Will. That is the person who will carry out the wishes of your Will. If you're single (kids or not), you'll want a Will unless you have little to no assets or only assets that bypass probate (discussed below).
Intestate
If you die without a Will, this is called intestate, and your “stuff” will be divided up according to state law.
Probate
Most Wills will needs to go through probate. Probate is the name of the legal process for settling a testator's (the deceased) estate.
The probate process involves a probate court, your named executor and a lawyer.
A lot of things do not need to go through probate, however. You may have heard that it is “good” to avoid probate. Probated wills incur costs against the estate – court fees, lawyer fees, executor fees (if applicable) and time.
Every state's probate process is different so you'll want to become familiar with the general probate process in your state. Retirement accounts (401(k)s, 403(b)s, IRAs, Roth IRAs, etc) DO NOT go through probate unless no beneficiary has been named. The same is true for bank accounts and life insurance proceeds.
Beneficiaries
Definitely make sure you have named your beneficiaries correctly. This is not as straightforward as it sounds.
For 99.9% of us, our spouse will be the primary beneficiary for all of these. In fact, if your spouse is not the primary beneficiary of your 401(k) (or a similar work qualified retirement plan), then you need notarized permission from your spouse to do so.
Let's say you have 2 children named Amy and Tom for the next example. The secondary or contingency beneficiary is logically 50/50 split between your two children.
Let's go a bit further and say Amy has 1 child and Tom has 2 children.
If, at the time of your death, Amy has passed as well, then guess what? All of it goes to Tom and Amy's child is effectively cut out of the estate. This is probably not what was intended. The intention was for Amy's share to pass on to her kid.
Per Stirpes
In order to do this, you need to name Amy and Tom and add the phrase per stirpes after their names. Per stirpes means that items are distributed to each family branch. Some states do this slightly differently so be sure to understand your state law on this.
Final Thoughts on Estate Plan Basics
Hopefully, the first post in this estate plan series took out some of the guesswork behind vocabulary that is often used with estate plan basics.
A much needed addition to the official documents is a “crib sheet” for your loved ones such as In Case of Emergency binder. In the meantime, check out this great book on estate planning:
[ Disclaimer: Please note that some of the links above are affiliate links. This means that I may receive a commission if you purchase through one of my links. I highly recommend all of the products & services because they are companies that I have found to be helpful and trustworthy. I use many of these products & services myself. ]
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