6 ways to support your family financially after death
Posted May 1, 2016
Following his unexpected death last week, Prince's sister revealed this week that that the pop icon had left no will.
"I do not know of the existence of a will and have no reason to believe that the decedent executed testamentary documents in any form," said Tyka Nelson in a petition to be made a special administrator in executing her late brother's estate.
With no appointed heir and no spouse or children, Prince's $300 million estate has already faced claims from not only his sister Tyka Nelson, but several half-brothers and half-sisters. According to Billboard, chaos, lawsuits and hefty tax bills are likely to ensue.
While Prince has left a debacle behind for his family members to sort out, you don't have to.
Even if you don't have a fortune, it's important to bite the morbid bullet and put your affairs in order. Here's what you can do to take care of your family's financial needs in the event of your death.
Get out of debt
The last thing you want your loved ones to go through after mourning your loss is harassment from creditors and debt collectors.
The good news is that most debt cannot be inherited by your heirs. But if you have outstanding debts, they will need to be paid by your estate before any of your assets are distributed. This reduces your beneficiaries' inheritance.
If you owe more than your estate is worth, your heirs may be responsible for some of your debts. For example, if a loved one co-signed for a credit card, he or she will be responsible for paying off your debt.
And according to U.S. News, even if your beneficiaries cannot be held legally responsible for your debts, it won't necessarily stop creditors from urging family members to pay up or contesting debts in court.
The best thing to do for your family is to leave this life debt-free.
Buy life insurance
Not only does life insurance offset the financial blow of funeral and estate tax costs, but it may be essential in supporting the loved ones you leave behind.
When making the decision to buy life insurance, you should consider whether you have family members who are dependent on your income. If you support children, a spouse, or a disabled family member, insurance is especially important.
Conversely, people without financial dependents might not need life insurance. Consult a financial adviser to determine how much and what type of life insurance is suitable to your family's needs.
Identify heirs and executor
Part of getting your financial affairs in order is deciding who will inherit your assets in the event of your death. You should select heirs — and alternates in case you outlive your heirs — and decide which assets you want each heir to inherit.
Bear in mind that ascribed beneficiaries on assets like insurance policies and retirement funds override any directions on your will, so make sure you keep your policies updated.
You also need to choose an executor for your estate who will be responsible for carrying out the terms of your will. This person may be, and often is, one of your heirs.
According to CNN, not only should you make sure you trust your executor completely, but you should ask their permission before making a decision. Executing an estate typically involves filing tax returns, distributing property and processing claims. Your executor should be capable and willing to carry out these duties.
Prepare a will
Once you know how you would like your assets distributed, it's time to put it in writing.
Depending on the size of your estate and the complexity of your assets, you may want to hire an attorney to help your draft your will. This will cost you at least $1,000 says CNN, but it can prevent complicated and expensive future legal actions.
Simple wills, however, can often be drafted with online services that will run you less than $100. This is recommended by U.S. News for estates worth less than $2 million.
Even if you have nowhere near that amount, you still need a will. Dying without a will puts your estate in probate, meaning that the court will decide how your assets are distributed. This can wind up being a long, expensive and potentially damaging process for your family.
Open a trust
Trusts aren't for everyone.
Opening a trust entails a high initial cost — $1,600 to $3,000, says CNN — so they only make sense if you have at least $100,000 in assets or if you have specific directions about how and when you want your estate to be distributed.
Essentially, trusts give you the ability to shelter certain assets from estate taxes and distribute assets in a more complex way. For example, dynasty trusts allow you to give money to your grandchildren tax-free.
Keep in mind that a trust doesn't replace a will. Trusts usually only apply to specific assets like homes or life insurance policies. Instructions for the bulk of your assets should still be included in your will.