Death is a subject that many people don't want to think about, and therefore many don't properly prepare their finances for it.
Failing to take the time to prepare your finances in case of death will not only mean that more of your money is wasted on court proceedings, but also that you will cause those who survive you more stress and work during a time when they are already full of grief. If you care about your family, you should make basic financial precautions so that the financial aspects are not something that your family needs to worry about during one of the saddest times of their lives.
Here are the steps you need to take:
Purchase Life Insurance
The first question you need to ask is whether you need life insurance. It's important to remember that life insurance is for those who will leave behind dependents who would suffer a financial hardship if their income were no longer available.
While people with children usually need life insurance, a single person with no dependents usually does not need it. If you are unsure, talk with a financial planner (not an insurance agent) about your situation to determine whether you need life insurance and, if so, how much.
Prepare a Will
No matter what your age, if you have any assets you should prepare a will.
The will is a basic document that explains how and among whom you want your assets divided after you die. If you die without a will, the process of disposing of your assets will take longer and cost a lot more -- meaning that the people to whom you want to leave your assets will receive less. In fact, the people you want your assets to go to may not receive anything at all. When you die without a will (intestate), the distribution of your property and other assets is done through a court and by state laws.
Once you have prepared a will, make sure that it is someplace where it can be easily located. While you may not want people to find the will while you are alive, it does little good if nobody can locate it once you die. The best place to keep it is with the executor, the person you designate to carry out its instructions. While a safe-deposit box might seem like a good place to keep it, be aware that some states seal safe-deposit boxes upon death, meaning you should also have a copy that can easily be located available outside the safe-deposit box.
Choose an Executor
Take the time to choose an executor of your estate. The executor will carry out all the instructions in your will. If you do not specify an executor, the court will appoint one.
The executor is typically a family member or the lawyer who drew up your will, but can be anyone of your choosing.
Write a Letter of Instruction
A letter of instruction is a guide for the executor. While it isn't legally necessary, it can make the entire process run a lot smoother.
It is important to note the letter of instruction is not a replacement for a will. This letter can explain where important documents are kept, where the safe-deposit key is located, where personal letters to individuals you have written that you want read after your death have been placed, etc. It can also explain what funeral arrangements you want and who you want contacted, so there is no doubt about your wishes.
Create a Trust
While a will may suffice if you don't have a lot of assets, for anything more you will want to consider creating a trust.
Upon your death, the assets that you place in a trust will automatically be given to the beneficiaries you have named. This allows these assets to avoid probate court and the costs associated with it.
Create a Living Trust
Also known as a durable power of attorney, this explains the details of how you want things handled if you are still alive, but incapacitated in some way and unable to state your wishes.
If you do not have a living trust in such a situation, the court will likely name a guardian to handle your financial affairs. A living trust can also spell out what you want done in specific life-and-death situations, such as whether to keep you on a life-support system.
If you have not completed any of the above steps, today is the day to get started on them. A death in a family is a terrible tragedy, and the last thing you want to do is compound that by not having financially prepared for such an event.
Taking the time to be prepared while you are still alive will ensure that the financial aspects of your death are not an additional worry to those that you leave behind and ensure that all your financial wishes are followed.
Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.