If you’re a father, there’s a good chance you help manage your household’s finances and you may even play the dominant role. This may work well now, but what if something were to happen to you? Would your family be financially okay? As you celebrate Fathers’ Day this weekend, you might want to consider taking these steps to ensure your family is protected:
1) Make sure you have adequate life insurance
You don’t want your family to struggle to pay the bills and put food on the table without your income, but many employees only have enough life insurance from work to cover a year’s worth of salary. This may be enough for some families to readjust, but if your spouse can’t make the mortgage payment on their own, and if they would be unwilling or unable to sell the home, you might want to at least make sure you have enough life insurance to pay off the mortgage. Even that might not be enough. You can use this calculator to estimate how much more (if any) you should buy to cover your family’s needs.
Once you know how much you need, consider purchasing a low-cost term policy for the maximum length of time you might need the coverage. For example, if you just need the policy to pay off the mortgage and you have 15 years left on the loan, a 15-year term policy should be enough. Purchasing a more expensive whole or universal life policy could encourage you to get less than you need or force you to drop the policy if financial difficulties make the premiums unaffordable.
You can search for term policies on sites like term4sale.com and insure.com and compare the premiums to what it would cost to purchase additional coverage through your employer. Just be sure that the coverage at work is portable. Otherwise, you may no longer be able to purchase a policy on your own after you leave your job if you’re in poor health.
2) Keep your beneficiaries updated on retirement accounts, annuities, and life insurance policies
You may have hastily put someone down as your beneficiary when you first opened your IRA 10 years ago, or even left it blank if you were really in a hurry, and never gave it another thought. This could lead to your ex-spouse inheriting most of your assets, your latest child being disinherited, or your heirs having to pay higher taxes and probate fees than they need to. That’s because a beneficiary designation overrides what’s written in a will. (All things being equal, there is an advantage in making your spouse the sole beneficiary of your retirement accounts because they can roll your accounts into their own to postpone taxation while your children and other heirs will have to start taking taxable distributions following your death.)
3) See if you can add beneficiaries to your other assets
You can generally add beneficiaries to bank and investment accounts, saving your heirs from the time and cost of probate. Some states also allow you to add beneficiaries to your home and vehicles.
Simply ask your bank for a “payable on death” form and your investment company for a “transfer on death” form. There are a few more steps for your home and vehicles but the process is still relatively simple. With these forms of ownership, your beneficiaries would simply need to provide a death certificate and a valid form of ID to take immediate ownership of the property. Otherwise, they may have to wait for the probate process (which can take months or even years) and pay legal fees before having access to money they may need to pay funeral costs and other urgent expenses.
4) Draft a will
Unfortunately, you can’t add a beneficiary to everything, including your children. While you may not mind having the court decide who’ll inherit your property, you probably don’t want them deciding who will raise your children. Being able to choose their guardian if something were to happen to both of their parents is often overlooked despite being one of, if not the most, important things the will does. You can get instructions and templates for writing a basic will online but it’s a good idea to have a qualified estate planning attorney at least review your documents (which should still generally cost less than having the attorney write the will from scratch).
5) Consider creating a trust
Do you have a taxable estate (currently $11.4 million per individual), property in multiple states, a child with special needs, or a will that may be contested? These are all reasons to consider hiring an attorney to draft a trust. It’s a lot more expensive than a will but can be worth the cost if you have a complex financial or family situation.
6) Try to get your spouse financially educated and involved in financial decisions if they aren’t already.
Set aside a time to review your finances. Recommend your favorite personal finance publications or shows. Invite them to come to financial workshops with you. At the very least, introduce them to any financial professionals you work with like a financial advisor, estate planning attorney, tax accountant, and insurance agent so they’ll have a relationship with someone they can trust to help them figure things out after you’re gone.
7) Have a record of where everything and everyone is. You can draft the greatest estate planning documents, set up the perfect accounts, and work with all the right professionals, but it won’t do your surviving spouse much good if they can’t find them or don’t even know they exist. One of our planners uses the site mint.com partly just as a record of all his family’s financial assets for his wife in case something were to happen to him. Another planner created an “In Case of Emergency” folder that has copies of her will, revocable trust, life insurance policy, and a summary of her brokerage and bank accounts and let her family know to look for the bright pink ICE folder if something happens to her. She also shared her password manager program information with her daughter so that, if needed, her family can access her digital accounts.
As a father, you may feel a special responsibility for the financial well being of your family. Part of that responsibility is making sure your family will be protected even if you’re not around to fulfill it.