Getting your affairs in order

It may not be a popular topic—but it is important to have a plan in place.

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Tips and to-dos from money guru Jean Chatzky

High on the list of financial topics people don't like to talk about is this one: What happens if something unthinkable happens to me? Uncomfortable avoidance is why far too many people—and far too many parents—don't even have a simple will. It's not that difficult. Here's what you need to do to put your affairs in order, just in case.

Decide if you need an estate plan:

If you're reading this, there's a pretty good shot you do. Put yourself on the list if you have children, assets, or property of value (bank, brokerage, and retirement accounts, cars, homes or anything else—collections—where you want a say about who inherits it). You can hire an estate plan attorney to draw up your plans, or if your scenario is fairly simple, you could potentially use software or an online program.

Draft a will:

If you die without a will—or "intestate"—the state will likely decide what happens to your belongings. In some states, they will all pass to your spouse if you have one. In others, they won't. But this doesn't solve the problem of both you and your spouse passing at the same time. You'll need to name an executor: someone financially stable and trustworthy to administer your estate after you die. More importantly, you'll name guardians for minor children. If you are caring for an adult child with special needs, you should consult with your attorney to develop a plan for their care in your absence. If you don't take care of these types of situations, you subject your children to what can become a long, drawn-out legal battle.

Name guardians:

You may want to name one person—not a couple—because should that couple divorce, your children could wind up with the one who wouldn't have been your choice. So, make a list. Then winnow it down by answering these questions: Does this person have the time to take care of my children? Does he or she share my values? Is this person young enough and in good enough health to take on this challenge long-term? Is the person geographically desirable? Does he or she have the necessary resources (or will I be leaving enough so that's not an issue)? Is he or she willing to do it?

Round out your plan:

There are three other pieces to a basic estate plan—a living will (which tells a doctor or hospital if you want life support measures taken should you need them), a health care proxy, and a durable power of attorney for finance (the latter two documents allow another person to make healthcare and financial decisions for you, respectively, if you're unable to do so yourself). Note: If you reside in multiple states, you will want to have living wills and advanced directives specific to those states.

Name beneficiaries:

Retirement accounts and life insurance policies will go to whomever you list as the beneficiary—not the person you list in your will. So, it's important to keep these up-to-date if you get married, divorced, or married again, or if you add children to your family and want to divide the proceeds from your accounts and policies among your kids.

Consider taxes and the titling of assets:

Right now, there is no federal estate tax owed unless your estate exceeds $11.18 million per individual (or $22.36 million per couple). In addition, some states have their own taxes—estate, inheritance, or both—separate from the federal estate tax. If you own an asset jointly and one of you dies, that house will pass to the living co-owner. One way couples save estate taxes for themselves and their family is to make sure that each person has a relatively equal share of assets—real estate, bank, and brokerage accounts—in his or her own name. Then, the will is written to move additional assets into trusts. Consult your estate planning attorney for additional information.

Discuss your need for trusts:

Trusts are often used in estate planning to minimize taxes (for example, an insurance trust—rather than individual—is set up to own a life insurance policy that might push the size of an individual's estate into the taxable range). But trusts may also be used to pass money to your heirs with strings attached. Many people put money for their children in trust to be doled out at ages 25, 30, and 35, for example. This way, children can't recklessly use all the funds at once. Again, your attorney can help.

Update every three years:

There are certain life events that call for updating your estate plan, including marriage, divorce, death of an heir or beneficiary, birth of a child, purchase or sale of a business, death of a guardian, executor, or trustee, when your children are no longer minors, and if your preferences change. Barring these changes, the general recommendation is to review your estate plan every three to five years.

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Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.
Jean Chatzky is not employed by Fidelity but may receive compensation from Fidelity for her services.

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