Estate planning is a difficult topic to address because it requires you to think about a world without you in it. No one likes to reflect on their own demise, which is why many people simply put estate planning off for another day and only get around to it when the chips are down.
However, like so many things in life, taking care of your estate planning now is the right step, even if you don't have any dependents. It's a weight off your shoulders, and it leaves plans in place if the unthinkable were to happen to you.
If you have a significant net worth, you should consider talking to a lawyer for planning advice for your estate, but for most people, these four steps should take care of most of your estate planning needs.
1. Prepare a master information document. A master information document is simply a collection of the information a person would need to properly close out your accounts and obtain any and all account balances you might have. This is an invaluable tool for whomever is responsible for cleaning up your estate after you pass away.
It's easy to prepare one. All you need is a printed document stored in a safe place,like a safe deposit box, that people will check when you pass away. That document should include information for every account you have open, a complete list of benefits anyone is entitled to upon your death, a list of all debts and assets, a detailed description of how to handle any business assets you may have, and a copy of your will, living trust and any other documents pertaining to your estate.
2. Purchase a term life insurance policy. If you're leaving behind anyone who relies on your income in order to keep food on the table, clothes on their back and a roof over their head, you need to have a life insurance policy in place.
Insurance salespeople will try to get you to buy lots of different types of policies, but all you really need is a term policy with a term long enough so that anyone reliant on you (like your children) will be independent by the end of the term. For most parents, that means a 10- or 20-year term policy that provides at least a few years of your salary.
3. Write a will to ensure the right people receive your possessions. If you have any personal items that you want handed to a specific person when you pass away, you need a will in place that dictates the handling of such personal possessions. Otherwise, you're relying on the court system and your family to figure it out, and that puts a burden on all of them.
Make a list of any items that you want given to specific people, then have the rest of your estate liquidated and split among all descendants or given to a charity, as per your desires. This can easily be transformed into a legal will using an online service like legalzoom.com.
4. Include guardianship plans in your will for dependents. Who should care for your children if you were to suddenly pass away? It can be a very difficult decision, and it should be one that you discuss with the people you are considering. More importantly, such wishes should be documented in a legal will.
The bottom line: Estate planning can be intimidating, but many of the steps people need to take are very simple. They also add to your personal peace once you've taken care of them. If you don't have these estate plans in place, consider spending some time before the end of the year to make sure those matters are in hand.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.