Meet Sophie. Sophie has been working at Corporate Co. for the past six years. Sophie’s happy, and thinks she has everything she needs: a great job, a loving husband, and an adorable puppy named Luke. However, unbeknownst to Sophie, she’s actually missing one thing: an estate plan. Sophie is stunned. What on earth is an estate plan? Well, you should think of it as collection of legal documents that specifies things like: How your property will be divided once you die.
Who will take care of your children and pets. And perhaps most importantly, who will make medical and financial decisions on your behalf should you become incapacitated. Now, I know what most of you are thinking. I don’t need any of this! And for the most part, you’re right. If you’re a single individual with few assets, you probably don’t need an estate plan. However, if you’re married, have children, or possess significant property, than the benefits of an estate plan are just too important to pass up. Sophie is clearly convinced, but still has one last question.
How does an estate plan work exactly? Well, it generally operates through five components. The first one is the will, which covers things like what property you’re leaving to whom, and who will be your children’s guardian. As for who actually carries out these tasks, since you’re um…dead, you’ll nominate a trustworthy individual to be your executor. Thus, a will has powerful advantages, but it also has serious limitations, most prominently, any financial account with a named beneficiary, like a 401K or IRA, will supercede the claims your will. However, don’t worry, you easily change these beneficiaries to the right person, if you haven’t already. So that’s the first component.
The second component of an estate plan is a living will, which dictates your preferences for end-of-life care, should you be unable to communicate them. This document is then generally paired with the third component, a healthcare proxy, which names a trusted individual to make medical decisions on your behalf. Both documents are critically important, as without them, your doctors must follow state defined hierarchies, which could leave you and your loved ones with a very unfavorable outcome.
Then, we have the fourth component, assignment of the power of attorney, which names a trusted individual to manage your financial affairs should you be incapacitated. And no, these powers are not automatically assigned to your spouse. In fact, without this power, your spouse could have significant limitations on selling even jointly-owned property! Finally, should Sophie have a net-worth of more than $100,000 or substantial real estate assets, she may want to consider the fifth component of an estate plan, a trust. Think of a trust as a legal “box” which you can fill with assets, like a house, to be passed down to a specific individual, called a trustee, once you die. This has two major advantages: One: It allows you to minimize your estate taxes.
And Two: It keeps your larger assets out of probate, which is the pricey, time-consuming way the court that distributes your property and pays off your debts, as outlined in your will. Finally, as for actually making the estate plan, while you can technically use a cheap, DIY online resource, we don’t recommend it. It’s just too easy to make a costly legal mistake. That’s why instead we recommend hiring an experienced estate planning lawyer, and don’t worry, our recommend website makes this process a breeze. Hopefully you and Sophie now better understand estate planning. Be sure to check out our next video, which covers children and finances, and be sure to check out our website, where you can find more educational content and great legal solutions.
# Children and Finances Issue
Meet Mark and Sophie. They just found out Sophie’s pregnant. They’re very excited. However, they’re also a little bit worried. Having a child is a life-changing event, and they just don’t know whether they’re financially ready for it. What should they do? Well, we’ve got them covered. The first thing they need to understand is that having and raising child is very expensive, generally around $250,000.
Thus, because this number is so large, it means that if Mark and Sophie have any bad financial habits, like excessive spending or bad credit, now is the time to fix it. Otherwise, their finances just won’t survive a child. For more details on this, be sure to check out our two videos: “Spending Plans 101” and “Funding Your Future”. But let’s say Mark and Sophie are all set financially. What then? Well, unfortunately, there’s still about nine things that need to be done before the baby is born. One: Start talking with HR to learn more about the parental leave program. Two: Start looking for a great pediatrician within your insurance network.
Three: Call your insurer to understand what pregnancy costs will be covered. Four: Get life insurance, at least for the breadwinner, as covered in our video “Life Insurance 101”. Five: Have an honest conversation about who, if anyone, is staying at home to raise the child. Six: Depending on that conversation, start looking for a great daycare and/or nanny. Seven: Learn more about saving for your child’s college education, as detailed in our video “How to Save for College”. Eight: Change the beneficiary of your 401K and IRA to your spouse or partner. And Nine: Make an estate plan, as detailed in our video, “Estate Planning 101”. Phew… so that’s end right? Well, actually no. Once the baby is born, there’s still three more things you need to do.
One: Ensure the baby has a birth certificate and a social security number. Normally, hospital nurses will give you these necessary forms. However, if they don’t, or your baby was born outside of a hospital, you’ll need to contact the SSA for the social security number and your state’s Office of Vital Records for the birth certificate. Two: Once that’s done, add the child to your health insurance policy, and do it quickly, as most insurers will only allow it within 30 days of delivery.
Three: Relax, take a deep breath, and enjoy your new baby! Hopefully you, Mark, and Sophie, now better understand how to navigate children and finance. Be sure to check our next video, which covers everything you need to know about life insurance, and be sure to check out our website, where you can find more educational materials, personalized financial products, and helpful legal solutions.