Have you figured out the secret to immortality? No? Well, I’d stop wasting time trying to find it. If you’re not immortal, then you should really be putting your focus into protecting your estate. After all, you worked hard to get to where you are today. You have to make sure that the things you own now will go to the right people when you’re gone.
It’s crucial that you start protecting your estate now.
Why you should really be doing this as soon as possible
I’ll be honest with you: you should know the main reason why you should be doing this right now. And that, of course, is that you don’t actually know when you’re going to die. This is true for everyone. Even people who think they’re going to die at a specific time due to a diagnosis doesn’t actually know when they’ll die. I know, it’s morbid. We could go on and on about how unpleasant it is to think and talk about this stuff. Or, we could just get these sorts of tasks over and done with as soon as possible! Once you’ve sorted them out, you’ll have much more peace of mind about the whole subject.
I suspect that a lot of people don’t understand what will happen after their death if they don’t have their estate protected. There seems to be a common belief that your assets are just all going to go to your next of kin. That they’ll just all somehow end up precisely where you’d want them to be. This leads them to see the estate planning process as something they don’t really need to do. (Some, of course, simply don’t bother because they know they won’t care all that much once they’re dead. Which is logical, in a way, but selfish if you have a lot of friends and family.)
This isn’t how things play out, of course. The thing you’ve got to bear in mind is the word protection. This whole process is about estate protection. Which should provoke the question: who am I protecting my estate from? Simple: the government. If you don’t have a will, or any type of estate planning, the government will take a share of your assets. If you own property, then your national revenue and customs institute will see less money from that asset sale going to your family. The IRS, for example, have Estate Tax in place – the least of your concerns, by the way – to ensure they get a chunk of your estate. Fair? No. But since when were taxes ever that?
Where there’s a will, there’s a way
The most obvious suggestion we can think of? Get a will ready. I may have used the term obvious suggestion, but that doesn’t mean enough people do it. In fact, the last few years have shown that way too many people don’t have wills. People under the age of 34 are particularly bad at setting up wills. Young though they may be, Death isn’t exactly known to wait until you’re 40. If you are over 18 and have money, it’s something you should be considered.
Without a will, there’s simply going to be too much financial stress of the people you leave behind. The logistics of ownership will become very complex. Who exactly is going to get what? When there isn’t a will, family relations can be put under enormous pressure. With a will, you have – so to speak – the final word. And remember that having a will doesn’t automatically keep you from having to think about it. After all, if your circumstances change, then you’ll need to update it. It’s a legal arrangement you have to keep tending to over the years.
No, I’m not referring to that Christian metal band. I’m talking about Payable on Death accounts. (To be fair, the name of that band does actually stand for Payable on Death. But I digress!) A will isn’t your only option when it comes to leaving something behind for your family. What you can is make a financial arrangement that sees the defined funds go straight to someone when you die. (This can also be done with general assets, but people usually think of it in terms of monetary arrangements.) This is probably the simplest death beneficiary arrangement you can make.
A Payable on Death arrangement can be made between you and pretty much any bank or credit union. It’s important to understand that a Payable on Death arrangement can’t cover all assets. Some can only be given correctly by a bank or credit union using a Transfer on Death arrangement. Yeah, I get that the two names basically mean the same thing. It’s important that you know the difference between POD and TOD.
Sharing ownership to protect an asset
This is a very effective way of protecting an asset. After all, estate planning boils down to legal complexities of ownership. When we talk about ownership, we usually just think of one person owning an asset. But what if two people own an asset? If there are two owners, and one owner dies, then there’s still one owner, right? (Math is awesome!) That means ownership remains with that partner, thanks to the very useful “right of survivorship” law.
In the world of real estate, many people are already in joint ownership agreements. But joint ownership can be applied to pretty much any asset you can purchase with a joint bank account. When one owner dies, the legal hold on that asset simply moves to a single owner: the survivor. Of course, joint ownership isn’t the most attractive solution to a lot of people. It may make transferring of ownership after death extremely simple. But it’s not exactly without its problems while you’re still alive!
Understanding the probate process
You’re probably heard about probate at some point in your life. It’s a process that many people who deal with a family death must go through. But what is it, exactly? What does it mean when the will is in probate, or some other beneficiary arrangement is in probate? Put simply, it’s the process in which the court will attempt to validate a given will. When someone dies, the court will be presented with the will. Whether the will was typed out or written by hand, they need to prove its authenticity. In short, they need to make sure the will is real.
The probate process is also relevant when parts of the estate haven’t had arrangements set up. Basically, it’s rarely something that can actually be avoided. Before and after your death, it’s something that has to be worked out. A probate attorney is probably your best bet here. Before death, they can ensure the process goes as smoothly as possible. After death, they can help your survivors keep hold of any parts of the estate that were left in the wild.
Life insurance: not as simple as you might think
For a lot of people, an easy solution to all of this is to get life insurance. After all, doesn’t that just ensure that your survivors get a tasty payout upon your death? Well, not exactly. Life insurance isn’t really as simple as its made out to be. Think about it. If that’s how it worked 100% of the time, how would any insurance company still be running? Their clients die by the hundreds or even thousands every year. Paying them all out in the manner people think they do would see them bankrupted very quickly!
Life insurance is something you need to be much more strategic about. It needs careful thought. Not only this, but it should never be used to replace a will or other beneficiary arrangements. Not only will life insurance not have much effect on your estate; it may also not actually be paid out. And you’re not exactly going to be around to complain.
The first complexity people will run into is the type of life insurance plan. This splits into two types: whole-of-life insurance and term insurance. That’s right: the “life” in “life insurance” doesn’t refer specifically to someone’s entire life. It simply refers to not being dead! Whole-of-life insurance is very expensive and much more complex. They also don’t tend to pay off that well. Some say it’s a type of life insurance policy you should avoid outright.
Term insurance is the one that people usually take out. It covers a set amount of time – let’s say, for example, thirty years. If you die within that period – and if your death “meets the terms and conditions” – our survivors should get the payout. Your insurance policy isn’t counted as part of your estate unless you don’t list a beneficiary. Speaking of which…
Kids as beneficiaries: a smart move?
People usually list kids as beneficiaries very often. It’s seen as the most natural thing to do. But you shouldn’t immediately assume it’s the right choice. After all, kids a bit younger and more foolhardy than us! We actually have an article about this in terms of life insurance policies!
***Images thanks to David Morris, Ken Mayer & Moolanomy***