Procrastinating responsibilities that seem boring or far away? Yep, we’re all guilty of it. And when it comes to protecting your personal finances, we get why this might fall into the"I'll get to that later" bucket at this point in your life. But the reality is that if we want to make sure our loved ones are taken care of when we're gone, we have to do some prep work now. Whether it's your family, your pet, or your business, make sure you have them covered if you aren't there. It might not be easy to think about, but just as the Fidelity Viewpoints® article "Five Ways to Protect What's Yours" explains, it is easy to take just five simple steps to plan for the unexpected and make sure your loved ones are protected—and you'll feel so much better once you do! Here are five simple steps you can take now:
Step 1: Create a will.
Want to make sure that the things you love go to the people you love? You need a will! Without one, the state you live in gets to make those decisions for you in a long, red-tape-filled process known as probate, which could make things seriously messy for your family. Not good. But all that can be avoided by seeing a lawyer and creating a legal document that leaves behind instructions on how to leave things on your terms.
If you have children, this is really, really important. A will isn't just about money; it's about people. In your will, you can name a guardian to take care of them, and a trustee to protect the inheritance you hopefully get to leave them. Unfortunately, if you don't leave a will specifying who should take care of these things, and something also happens to your partner, the state will make those decisions for you. That's why this is step one in making a post-you plan!
Step 2: Choose the person you want in charge of you and your things.
If something bad does happen and you aren't able to speak for yourself, you'll want to have picked the person to be your voice and make decisions on your behalf. Here's how it works: "Power of attorney" is a legal document authorizing someone who you choose to step in and act for you if you aren't able to act for yourself. It can be any competent adult (usually people choose their spouse or partner, but that's up to you) and you can specify exactly how much of your affairs they'll have a say over. A lawyer can take you through the details and options, but two big things you'll want to think about are your finances and your health care. The person you choose as your "health care proxy" will have the power to make medical decisions for you if you aren't able to. Power of attorney is an easy way to make sure the person you trust most is the one making the big, important choices for you. Don't leave your life up for grabs—have a say now!
Step 3: Name your beneficiaries.
Beneficiaries who?! When you open an investment account at a financial institution—an IRA, or start a 401(k) at work—you need to name all beneficiaries: the person, or people, who will get the money you've been saving up. This is different from a will because it's something you arrange with the institution you've started the accounts with, which means that some of that annoying red tape known as probate can be eliminated. To find out how to name beneficiaries for your retirement plan at work, talk with your employer or the company that administers the retirement plan. Usually it's as simple as filling out a form or entering the information online.
For other accounts, like brokerage accounts, talk to the institution you're set up with to arrange a "transfer-on-death" (TOD) registration that will send all the money you've saved to the person or people you name.
Step 4: Keep it all current!
Things change every day, so the will you wrote last year might not match up with the life you're living today. If you get married, have a baby, move, or make any other big changes, you'll want to review your will, power of attorney, and beneficiaries to make sure they're up to date.
Step 5: Ask for help
Sure, we can find out how to do a lot of things online, but when it comes down to it, big decisions usually require an expert's guidance. Finding an attorney to draw up legal documents like your will, power of attorney, and health care proxy will ensure that everything is as it should be—and you'll have the comfort of knowing you've done everything possible to make sure your loved ones are given everything they need. So don't be shy. Turn to the experts for help and know that your goods are in good hands!
Terms to Know:
Estate: The net worth of a person at any time, alive or dead
Estate Planning: The process of planning for what will happen to the things you own and care for if you are unable to keep them due to injury or death
Intestate: Not having a will
Probate: A legal process that takes place after someone dies to validate a will and deal with their property—it varies from state to state
Beneficiary: The person or people who are legally named in a will to be given money or other things after the death of the will writer
Power of Attorney (POA): A legal document authorizing someone who you choose to step in and act for you if you aren't able to act for yourself
Health Care Proxy: The person you choose and legally name to have the power to make medical decisions for you if you aren't able to
Living Will: A legal document that leaves instructions on what you would want to happen with your health care treatment if you are unable to make decisions for yourself, also known as an "advance health care directive"
Transfer on Death (TOD): A registration for nonretirement accounts that allows ownership of the account to be transferred to a beneficiary you have named if you pass away
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The tax and estate-planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.