When someone passes away, their estate is divided into two important categories: assets and debts. Assets are things like property (houses, cars, bank accounts), business interests (companies) or individual retirement accounts (IRAs). Debt includes loans such as credit cards, mortgages and student loan obligations.
Normally, your loved ones will try to settle all of these debt obligations in first place before turning to your belongings, but it’s not always possible. In fact, some creditors won’t agree to this unless you can prove that you have enough money to pay off what you owe them. This could prevent your family from accessing everything you own!
That’s why it is very important to plan ahead for your financial future, especially during times when life may be difficult. By setting up various types of trusts and policies, you can make sure your beloved ones don’t run into trouble paying off your bills while also protecting your personal possessions from being spent on obligations.
This article will go over some basic tips on how to prepare for your death with respect to finances. We’ll talk about who gets what, how trustees are appointed and how beneficiaries are named, along with some other helpful information.
Who should do estate planning?
As we have seen, even if you don’t think you will ever need to plan your estate, doing so is still valuable. By having a will, you are telling yourself what happens to your assets after you die.
And by setting up an advanced health-care power of attorney (also called a healthcare proxy), you are giving someone else authority to make important decisions for you in case you become too sick or can no longer make these decisions yourself.
Both wills and healthcare powers often require some sort of witness who knows you well. This makes it much easier to find people that you trust to watch over you when you aren’t able to anymore.
There is a very different sense of responsibility around death in East Asian cultures than there is in Western ones. In Japan, for example, people tend not to talk about dying and how others will be affected when they pass away.
In fact, many Japanese feel uncomfortable talking about death at all because of this cultural stigma.
This means that less formal education about wills and other types of probate may exist in those countries.
What does estate planning include?
More broadly, “estate planning” means figuring out how to organize your personal affairs, business affairs, and/or charitable affairs after you die or are no longer able to manage them yourself. This includes deciding who will take care of your loved ones if you die (your family), decide to live with you in your home as your caregiver (household members), run your company for you while you can (employees), make donations to charities that mean something special to you (charitable organizations), and so on.
Most people start thinking about estate planning when they hear their loved one has passed away and there are bills to be paid, inheritance taxes to worry about, and relatives to coordinate services for the body. Or maybe they learn about expensive mistakes other people made during this process and want to avoid making similar ones themselves.
That’s all very understandable! But before you get too worried about these things, remember that most people don’t have much money invested outside of retirement accounts like IRAs and pensions, and even those can be complicated.
What are your assets?
Even though you may not think about it, your estate will still be completed during your life. This is particularly important to consider as you grow older.
As you can probably guess, your heirs will have to know what things you own before they can get anything out of the belongings you’ve left behind. This is why it is very important to make sure that everything is documented properly.
Your house is an asset!
Most people believe that their house is “their” property even if they don’t live in it. However, your house is part of your estate just like any other possession you hold. Yours becomes yours forever, which means someone else could take ownership at any time.
This is why it is crucial to understand how your house fits into your overall estate plan. For example, most individuals retain control over their houses for several years after they die. During this period, their families can either purchase the house or rent it from them.
Some individuals choose to give away or sell their homes while they are alive so that their loved ones do not have to pay inheritance taxes on it. This way, their wealth is protected and distributed more evenly among all family members.
Legal documents such as wills and trusts play a major role in determining who gets what when you pass away. Fortunately, there are many ways to structure your estate efficiently so that everyone knows exactly what to expect.
What are your debts?
It is very important to know what debt you have and how much money you have in the bank. This information will help determine how to best manage, reduce or eliminate your debt.
It’s also an excellent way to make sure everything goes to the right person after you die. Your house, car, and other assets can be transferred to family members who should inherit these things, but they may need guidance on how to spend their inheritance well.
Many people start thinking about estate planning when they hear about someone else’s passing.
Who will get your assets?
Even though you don’t intend to die today, tomorrow may be too late if you haven’t thought about who gets access to your money and belongings.
This seems like an odd thing to say, but it is very true!
As we age, our health can begin to fail us. We could suffer from serious chronic conditions or even have a life-changing event occur (like being diagnosed with cancer).
In both cases, it would be difficult to deal with medical costs. It also becomes more likely that family members will need help paying for healthcare, housing, and food after you are no longer able to contribute to these expenses.
All of this can easily put stress on loved ones, which could lead to problems they wouldn’t want to face. In fact, studies show that caregivers experience higher levels of depression and stress than people without responsibility for someone else’s well-being.
So how do you plan ahead to address all of this? You start by making sure everyone knows what personal resources you have (medical insurance, bank accounts, house keys) and who gets access to them in case something happens.
Who should get your debts?
Even though you’re not legally obligated to do so, it is the ethical thing to do! Leaving someone with debt can create major problems for them, possibly even leading to homelessness or foreclosure.
Before you die, you need to make sure that your loved ones are taken care of financially. This includes paying off loans, making provisions for family members (e.g., parents who will be raising young kids soon), and transferring money to pay for things such as education expenses or house repairs.
It’s also important to think about how much income each person has before deciding whether to keep their credit card in hand or give up their expensive habit. If possible, people should strive to live within their means to avoid passing along heavy financial obligations to future generations.
At some point, however, life gets harder. More going out than coming in creates a problem unless you have savings or an inheritance. So, when this happens, who handles the bills becomes more crucial.
Who will get your estate plan?
Even though you may want to leave everything to your children, this is not possible in some cases. If this happens, who gets what can become very confusing for both family members and lawyers.
It’s important to understand that even if you don’t have any kids, people still need to know how to handle your belongings after you die. This includes your loved ones and your lawyer!
Some examples include leaving money to your favorite charity or having someone you trust take care of your house, boat, car, etc. There are many ways to do this. Your loved ones and attorney should be able to find out where all of your things go at death and how to access them.
What are your preferences?
As we mentioned before, estate planning is more than just having a will. There are several different types of wills you can have depending on what kind of person you are.
You may want to consider using a probate will if you do not want anyone else to get your belongings or take control of your money after you pass away. Or maybe you prefer a simple will that does not state who gets your stuff or pay bills for you.
This type of will is usually done when people feel that their loved ones deserve some sort of reminder about them while they are still alive. A testator’s name is often left in as a beneficiary so that his or her friends and family know who receives anything he or she leaves behind.
There are many ways to organize all of your important documents and items. We recommend doing it yourself this way because then you know everything there is to know about how to care for these things.
Hopefully you already have an idea which type of will you would like to use, but thinking ahead and organizing your possessions and personal records is always good practice.