Even if you don't have much money and don't own a home, you still need an estate plan. Through your estate planning documents, you can do far more than just leave things to your heirs. You can name a guardian for your children if something were to happen to you, appoint someone to make financial and medical decisions if you become unable to, and make your final wishes known. And getting these documents prepared and signed isn't nearly as difficult or expensive as you might imagine.
To get started, you just need to make some decisions. Answer these seven questions and you will be well on your way to meeting your estate planning goals.
1. What do you own?
Legally, your money and possessions are called "assets." Make a list of your bank accounts, IRAs, 401(k)s, and other investment accounts. Then list any real estate, vehicles, and boats you own. Finally, list other valuables—including jewelry, antiques, art, and collectibles. You don't have to list every piece of furniture or pair of earrings—just focus on the things that are most valuable or that you know you want to leave to a specific person.
2. Who gets what?
Many people leave everything to their spouse in their will or trust. Even if you do this, you should decide to whom your assets will be passed on if your spouse dies before you do. For example, some people leave everything to their children equally, while others leave specific things to specific people.
3. Who will take care of your kids?
If you have children under 18, In your will, you have an opportunity to name guardians for them, if you and their other parent pass away. Choose someone your children know and whom you trust, and make sure they are willing to accept the responsibility.
4. Who will be your executor?
An executor is the person responsible for filing paperwork and tax returns after your death and distributing your assets to your beneficiaries. Pick someone who is trustworthy, comfortable taking on these administrative tasks, and able to deal with other family members. Then choose a backup executor in case your first choice is unable to serve.
5. Who will make your financial decisions if you can't?
A durable power of attorney allows someone else to step in and handle your financial and legal affairs if you become sick or incapacitated and can't handle them. Choose someone who can handle your money responsibly, and make sure they are willing to do so. Also, pick an alternate.
6. Who will make your medical decisions if you can't?
A healthcare power of attorney empowers someone else to make medical decisions for you if you are too ill or incapacitated to make them for yourself.
Choose someone who is able to make tough decisions, who can communicate well with other family members and medical personnel, and whom you trust to do what is best for you.
Have a backup in case the person you choose is unavailable.
7. Do you want a living will?
A living will, also known as an advance directive, explains what kind of medical treatment you want if you are terminally ill or in a persistent vegetative state and are unable to speak for yourself.
Knowing what you would have wanted can make things easier for your family and healthcare providers if and when they face difficult decisions.
Once you've answered these seven questions, the hard part is done. Now you simply need to complete and sign the documentation to record your wishes.
Find out more about Estate Planning Basics