While nobody likes thinking about their mortality, the reality is that at some point, we all leave our loved ones behind. The best thing we can do for them is to ensure that an estate plan is implemented to account for their needs and meet your wishes for bequeathing your assets.
Depending upon your life stage and your family’s needs, estate planning can look very different from one individual to the next.
There are several things to consider to ensure that you will meet your family’s needs after your death.
Secure Enough Life Insurance
Most individuals first consider getting a life insurance policy when they start a family. Caring for a family is expensive, and losing an income can devastate a family if they do not have life insurance or a sufficient amount of life insurance. Securing a life insurance policy with an adequate amount of coverage can help your family maintain their standard of living in the event of your untimely death.
Individuals with young families will generally need more coverage than those with older children since the living expenses with young children will be higher. But more importantly, the amount of life insurance you need should be based upon your income. A family’s standard of living is often based on the parents’ income(s); this would dictate the total amount of bills the family has monthly.
Many resources can help you determine the amount of life insurance you should secure, including life insurance calculators that account for your specific information. However, three general formulas can be used to simplify the process:
- Multiply your income by 10: This process doesn’t factor in your family’s exact needs or your existing assets and debts. Despite this, it can often be a good starting point to give you an idea of how much insurance you need.
- Multiply your income by 10, plus $100,000 per child for college expenses: This method is similar to the prior one outlined but adds additional funding if you believe your children will have college expenses.
- The DIME Formula: This formula assesses your family’s unique needs by looking at your debt and final expenses, your income multiplied by the number of years you must support your family, the amount needed to pay off a mortgage, and planned education expenses for your children.
To get an even more detailed analysis of your life insurance needs, you can consult with an estate planning attorney who can direct to an appropriate life insurance agent.
Address Guardianship & Child Rearing Issues
Parents with minor children also need to consider guardianship issues. In the worst-case scenario, something could happen to both parents that leave the child or children without legal guardianship. If multiple people on both sides of the family want to step up and assume the guardianship role, there could be a need to involve family courts. This process is frequently costly and emotionally draining, and it can have a lasting impact on the emotional well-being of the children. And in the end, the court will decide who will assume guardianship without any input from you.
On the other side of the spectrum, you may not have any family and would prefer to leave your child or children with a close friend. Without naming them as guardian, they would have no legal claim to become a guardian. Unfortunately, these children may become a ward of the state and enter the foster care system. Some family courts will account for the child’s preference if the court determines they are fit to assume guardianship.
In addition to naming a guardian in your estate plan, it is a great idea to name a secondary one. This extra step will ensure that your children still have somewhere to go, even if something happens to the primary guardian.
It may be a good idea to document individual wishes you have related to raising your children. It would be a mistake to assume that the guardian you select has the same ideas and goals as you. If there are elements of raising your child that are incredibly important to you, they need to be expressed.
Accounting for your family’s needs after your death is just one small part of the overall estate planning process. For many people, this process is confusing, and they don’t know where to start.
If you would like to learn more about how to determine your family’s needs and implement an estate plan that will carry out your final wishes, it may be a good idea to talk to a reputable and knowledgeable estate planning attorney.
