Many people don't like to think about estate planning, because they don't think they need it. However, just about everyone, no matter what age or income, should take a few basic steps. Stephanie AuWerter, Contributing Editor of SmatMoney.com, offers some tips on how to plan your estate.
First, write a will. Wills aren't just for the wealthy. If you've got stuff and any assets, then you probably have an opinion of who should get what if you die. And if you have kids, you probably know who you'd want to raise them. So you need a will. Writing one doesn't have to be complicated or expensive, although if you do have a sizeable estate, use an attorney. But for a simple will you can use software programs. Stephanie recommends one offered by a company called Nolo for $50.
It's also important to sign a durable power of attorney. These are legal documents that determine who will make financial and health care decisions on your behalf, should you no longer be able. It isn't for when you die. It's to be used if you're incapacitated in some way. This is something none of us wants to think about, but it's so important that we do. It can avoid family fights and ultimately keep your family out of court.
You should also come up with a plan for long-term care, should you need it. This is particularly important for folks in their 50s and 60s. Long-term care is breathtakingly expensive and Medicare does not cover this. So consider long-term care insurance. This is something you need to buy when you're in good health. Now, the insurance isn't cheap, but having to pay out of pocket for these costs can bankrupt a family. So you need to know how bills could be covered one way or another.
Remember to keep your beneficiaries updated. If you have gotten married, divorced or had kids, you want to review and update any account that has a beneficiary. This includes your 401(k), IRA, any brokerage or bank accounts you have and your insurance policies. Chances are you don't want your retirement account going to your ex-spouse. So make sure they're up to date.
And finally, convert to a Roth IRA. A Roth IRA is a great estate-planning vehicle. Distributions are tax free and you don't have to take withdrawals like you do with a regular IRA. So if you have a regular IRA, consider converting. In the past, there were income limits on who could do this, but starting this year, they've been lifted. Also, this year there is a tax break where you can spread out the tax hit that comes with a conversion over the next two years. So it's a great time to do it.
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by Jenn Eaker and Stephanie AuWerter
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