When you have worked hard your entire life, you owe it to yourself to ensure your estate—whether it is a few thousand dollars or a few million—is passed onto the people or organizations you want to receive it.
And making a concerted plan for what happens to your money, belongings, and other assets is just as important—if not more so—for people without a partner or children. Without those next of kin, it makes the question of who will inherit your assets less obvious, says Haley Schaffer, founder and managing partner at Waypoint West, a wealth advisory firm.
You can always do nothing and leave it to the government to figure it out for you. But if you want to ensure specific people—like your friends, nieces and nephews, etc.—or organizations are the beneficiaries of your estate, then it’s all the more important to put some guardrails in place. Otherwise, it will go to probate.
“That’s going to cost anywhere from two to 10% of your estate’s value, and it’s going to take on average 20 months, and you have no control of who your money goes to,” says Schaffer.
And while estate planning might sound grandiose, there are simple steps everyone should take—regardless of their relationship status.
- Assign account beneficiaries: Take five minutes to add account beneficiaries on 401(k)s, IRAs, life insurance policies, and annuities. When you do this, the assets will also avoid being sent to probate. You can do this on your own simply by logging into your financial accounts and adding someone to them. You should assign primary and contingent beneficiaries.
- Add TOD or POD designations: Transfer-on-death and payable-on-death designations apply to other types of accounts, like any non-retirement investment accounts or bank accounts. This can usually be done online, or by asking your financial institution. This also means these types of accounts will avoid probate.
- Create last will and testament: A step up in the effort department, for sure. But if you are not married and want to leave your assets to specific people or organizations, you need to spell that out in your will. Otherwise, everything will go to probate and be distributed according to your state’s intestate succession law. The will should include a list of items that cannot be titled—say sentimental belongings or even jewelry. Account beneficiaries supersede anything in your will, so keep that in mind. (If you have children, you can also name a guardian in your will.)
- Establish a revocable living trust: A will is important, but it does not avoid probate. A trust, however, does. You can set up a trust, and then name it as the beneficiary on all of your accounts. After you die, your assets will be retitled in your chosen beneficiary’s name.
“Generally speaking, if you own a home or property, [a trust] can be a great way to keep your estate plans simpler and assets out of probate,” says Sofia Figueroa, a certified financial planner and wealth advisor with Ellevest. “I also recommend a trust if you have minor children or dependents who cannot directly inherit assets from you.”
And if you have minor children, make the trust the beneficiary of any retirement accounts or life insurance policies rather than your child to help avoid bureaucratic red tape.
A basic will or trust shouldn’t be onerously expensive, though it depends on the complexity of what you want to do and the state you live in. Typically, seeing a lawyer to get these documents in order can cost a few thousand dollars, although if you already have a financial planning or wealth management team, they may include foundational trust and estate documents in their fee.
“In California, I see some people charging $10,000 to put these things together. I don’t think it should be that expensive if you have a relatively simple situation,” says Schaffer. “I think doing some research on how much this should cost and asking around and talking to a few people is the right move.”
There are also digital services—including Steward (which sponsored this estate planning guide on The Purse) and Alix—that might be more affordable.
As a last resort, though, you can draft something on your own—as long as it’s dated and signed in your own handwriting, it can hold up in probate court, says Elizabeth Acevedo, an estate planning attorney at Weinstock Manion. And of course, someone else needs to know that it exists.
“There are formal procedures for signing a will, but if you can’t get to an attorney and have something drafted up, putting actual pen to paper, dating it and signing it, that is a valid will,” says Acevedo. “We’ve literally submitted a Post-it as a will and probated it because it had those three requirements.”
Who will care for you
One of the most important things to understand about estate planning is that it encompasses not just what happens to your money and assets when you die. It can also determine who may make decisions in your name while you are still alive but perhaps too sick or otherwise incapacitated to manage on your own.
To that end, it can be especially important for non-partnered people to assign medical power of attorney and financial power of attorney.
- Durable medical power of attorney: Certify who is allowed to make medical decisions on your behalf if you are unable to. You can outline your preferences when it comes to questions like which life-sustaining treatments you’re okay with doctors pursuing. You can also name a backup in case your first choice is unavailable for whatever reason. This person will have final say on the types of treatment you receive, who your doctors will be, and even where you will live if you need assisted living.
- Financial power of attorney: Similar to the medical power of attorney, this allows the designee to handle the various financial aspects of your life if you cannot for some reason, like accessing bank accounts to continue to pay a mortgage, and so on. It also allows them to contact your health insurer.
Otherwise, depending on the state you live in, a parent or other close relative might be granted these powers. If you’d rather someone else be in charge, then you need to have paperwork to reflect your preferred choice.
“Let’s say something tragic happens, and you’re in a coma. You want somebody that you deeply trust to make decisions about your health care,” says Schaffer. “From a financial perspective, if you’re incapacitated and you can’t pay your mortgage, you want somebody that you can trust to keep your finances going for you, while you’re not able to make decisions.”
Additionally, you may also want to compile a “death book,” or “death note.” This is a compilation of all of your financial and estate documents in one place. Basically, it will ensure your executor (or friend, lawyer—whoever will be tasked with settling your estate) can find all of your accounts, passwords, property titles, etc. This article details exactly what to include in it.
“Keep a physical copy of your most recent estate planning documents, not just a digital copy,” says Figueroa.
Finally, make sure the people you are naming in your various documents—whether they are account beneficiaries or your medical power of attorney—know what you have in mind. First ask them, of course, and then it can be helpful to write them a letter or email outlining everything, says Schaffer.
“We actually have a worksheet for people where, if I were to select you as my power of attorney for health care, it goes through all of these different specific situations,” she says. “You’ll have that document, and, ideally, do as I wish, or understand what my values are.”
A note for widows
If you were married but are now widowed, there may be a few other things to take into account. The first being: How much do you know about your overall financial plan? If your deceased spouse was the primary driver behind your investments and retirement planning, for example, you may have a little work to do to learn about your overall money picture.
If you weren’t involved in the investment side of your finances, it can make sense to talk with a financial professional who can explain what you are invested in. Then you can make a decision on if that aligns with your own wishes and risk tolerance.
Next, you will likely need to update any estate plan that you created with your spouse.
For example, if you and your spouse named each other as the beneficiaries on your financial accounts or of a trust, you will need to change that to reflect who should receive the assets now.
It may seem overwhelming, so take your time. There’s no need to rush to get these tasks done while you’re still grieving. Instead, make a plan to address them in a year, with periodic updates after that.
