If you died tomorrow, who would get your money and property? Who would you want to care for your children? What about your pets?
Let’s face it: The past year has made us all think about our own mortality a lot more. But creating an estate plan with an attorney can be expensive, sometimes costing thousands of dollars. That’s a lot of money at a time when so many people are strapped for cash. Fortunately, there are a few things you can do to be prepared even if you don’t have much money to spare.
Yes, You Have an Estate
An estate may seem like something you only have if you’re Warren Buffett or your last name is Vanderbilt. But your estate is simply everything you own. If you have money in a checking account, a car, a house or a painting on your wall, all of that counts as part of your estate, even if none of it’s worth much.
What Is Probate and Why Do I Want to Avoid It?
Probate is the court-supervised process of distributing your assets when you die. During this process, your assets are frozen, meaning they can’t be sold, and creditors get first priority. Everything becomes part of the public record. This process can often take over a year, though it’s a lot simpler if you have a will. Even if you have a will, your instructions can be contested.
Someone who dies without a will is said to die intestate. When that happens your property gets distributed by a court-appointed trustee according to the laws of your state, rather than according to your wishes.
Though probate isn’t completely avoidable, some assets can be transferred outside of the probate process. That’s typically preferable, due to the time and lack of privacy you get in probate.
When you designate beneficiaries for your assets like your retirement plans and bank accounts, you avoid probate. Beneficiary designations supersede your will, which means if you name someone as your beneficiary, they get the money, even if your will says someone else gets all your assets.
5 Easy Estate Planning Moves You Can Make Today
Let’s be clear here: This is not a comprehensive estate-planning guide. There are infinite ways things can go wrong in estate planning, and we’ll outline a few of them.
In some situations, you absolutely need to consult with an experienced attorney — such as if you own significant assets, you’ve been married multiple times or you think it’s likely that someone in your family would mount a challenge to your final wishes. But these are some steps that can help you get started.
1. Make your bank account payable upon death.
If you have a bank account or certificate of deposit, you can make the accounts payable upon death. That means the beneficiary you name will get the money in your account when you die without it going through probate.
Making an account payable on death is as simple as filling out a form with your bank or credit union. In some cases, you can do this online. You can also change the beneficiary at any time by filling out another form.
When you die, the beneficiary automatically becomes the owner of your account. To claim the money, they’ll only need to provide identification and a certified copy of your death certificate. Note that if it’s a joint account, the beneficiary has no claim to the money until after the final account owner has died.
If you’re married and live in one of the nine states known as community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — your spouse is entitled to half the money unless the money was yours before you got married or you received it as a gift or inheritance.
2. Review your beneficiaries for your retirement accounts and life insurance policy.
Suppose you’ve divorced and still have your ex-spouse listed as the beneficiary of your life insurance policy or 401(k) plan. Your ex will get the money, even if you’ve remarried and your will states that your new spouse gets everything you own.
If you have multiple retirement plans and insurance policies, it can be easy to lose track of them. Make a list of all life insurance policies and retirement, investment and bank accounts, and review the beneficiary designations. Set a date to review those designations at least once a year. Any time you have a major life event — a divorce, birth of a child or the death of someone you may have listed as a beneficiary — be sure to update those designations.
If the beneficiary you named has died, the account will likely wind up in probate.
3. Create an advance directive.
Advance directives are legal documents that specify what type of medical care you want if you’re unable to make decisions for yourself. They can include:
- A living will: This document specifies your wishes for end-of-life care. It only becomes effective once two physicians separately determine that you’re no longer capable of making decisions for yourself.
- Medical power of attorney, or health care proxy: This is someone you designate to make medical decisions on your behalf. It can be a family member, though it doesn’t have to be.
- Do-not-resuscitate order, or DNR: An order that tells your doctor not to perform CPR if your heart stops beating.
- Wishes for organ and tissue donation.
You don’t need an attorney for an advance directive, but the rules vary from state to state. Most states will require two witnesses to be legally binding. Keep in mind that an advance directive that’s valid in one state may not be recognized in a different state.
The National Hospice and Palliative Care Organization maintains advance directive forms for download for all 50 states, Washington, D.C., and Puerto Rico. Once you’ve completed the forms and signed them in accordance with your state laws, make several copies and give them to family members, the person you’ve designated as your medical power attorney, and your physicians. Anyone who is likely to be involved in your health care should have a copy.
4. Write a last will and testament online.
A number of websites let you create a last will and testament online for $100 or less. You’ll typically only want to use these products if your estate is relatively simple, i.e., your assets are limited, you don’t have a child with special needs or estranged family members who are likely to contest the document. A few options include:
- Nolo’s Quicken WillMaker & Trust 2021, $99. Includes over 35 documents, including a will, living trust and health care directive. Documents aren’t valid in Louisiana, U.S. territories or Canada.
- Rocket Lawyer, $39 per document for nonmembers or $39 per month for membership. Some attorney services are also included with the membership.
- Willing.com, starts at $69 for online wills. For more information, check out our full Willing.com review.
Note that if you have minor children, it’s well worth the cost to spend money on an attorney. You need to make sure that your plan for their guardianship is airtight. Also, minors can’t legally take ownership of property until they reach the age of majority, which is 18 to 21, depending on your state, so you’ll want an attorney who can determine the best way to structure any potential inheritance.
5. Talk to your family members about your final arrangements.
Even though you can specify your wishes for funeral, including whether you want to be buried or cremated, often final arrangements have already been made by the time estate-planning documents are located.
That’s why it’s essential to talk to your family about your wishes, no matter how morbid it seems. You can leave written instructions to document your wishes, but there’s no guarantee that your loved ones will actually follow them. Talking through your wishes is essential.
If your family is grieving your unexpected death, they aren’t in a great position to make decisions. They may be vulnerable to being upsold on certain funeral costs, even if that’s not what you’d want.
For example, a traditional funeral and burial can cost upward of $10,000. But maybe you’d be fine with a direct cremation and memorial service, which could cost $2,000 or less. By telling your family what you’re OK with, you’re giving them permission not to spend money on things that aren’t important to you.
Robin Hartill is a certified financial planner and a senior writer at Codetic. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]