One of the most common topics in personal finance writing is estate planning. Life insurance? A will? A living trust? These are always bandied about and readers are always encouraged to get on board with all of these things.
What’s often not asked is whether or not estate planning really even applies to you at all. Does it? Let’s take a look.
The first question you need to ask yourself is if you passed away tomorrow, would you leave anyone else behind in a financial pinch? Do you have dependents on your income tax? Are you helping out your parents as they get older? Look through your life and ask yourself if anyone would be in a significant bind if you suddenly vanished (and the people you work with professionally don’t count here).
If you can identify people who would need help (or may need your help in the near future, like a future spouse), then you should have some sort of life insurance. There are many tools online for estimating how much you’ll need – this MSN Money tool is particularly good.
If you can’t identify anyone, you probably don’t need life insurance at all. A tiny policy – just to cover your funeral expenses so you don’t burden your parents with the cost – might be appropriate, but if no one is left hanging by your passing, life insurance isn’t really a necessary expense for you.
Another worthwhile question to ask is do you have any specific sentimental property or small assets you want given to specific people when you pass? If you do, then a proper will is in order, so you can specify your wishes. If you don’t care what happens to your stuff for the most part, then you can either not have a will at all (and allow the court system to distribute your assets) or have a very will that assigns everything to one person.
What if you have a lot of assets you want to pass on to people? In that case, you’ll probably want to set up a living trust of some sort – consult a lawyer. You’ll probably also want to prepare a financial preparedness document for your survivors, so they know where everything is and can easily access it.
To put it simply, if you’re a young and unmarried professional without any kids or other challenges, you likely don’t need to worry about estate planning at all. Instead, focus your energy and your money on building a strong career and preparing yourself for the other challenges and goals in life, and revisit this question if you decide later to get married and/or have children.
If you’re young and are married (and/or have young children), but haven’t accumulated significant assets yet, you should have life insurance and a basic will. Life insurance will ensure that your surviving spouse and children are taken care of, and a will may specify any other specifics you may want to label, particularly in the event of the death of both you and your spouse with surviving children.
If you’re later on in life and have accumulated significant assets, that’s when a living will comes into play. Consult a lawyer and get one set up properly so that your wishes are clearly carried out after your passing.
Estate planning is a perfect example of how the same old financial advice doesn’t apply to everyone. People at different stages in life have different needs.