The Three Financial Moves You Need To Protect Your Family

living trustBeing among family this week the conversation has revolved around taking care of our loved ones.  All of my cousins have families with children, they all work hard to ensure financial security for their family.  What I found surprising was that the majority of my relatives didn’t have a will or trust.  They presume that if something happens to them their spouse would just inherit everything and take care of the children.  They’ve never given thought to the worse case scenario: what if something happens to both of them. They are also uncertain of what type of life insurance they have and the payout amount.

We all don’t want to think of our mortality, but if you truly want to take care of your loved ones you need to have things in place for them when you’re gone.  In times of grief you don’t need to be a financial burden on them.  Here are the three financial moves that you need to protect your family:

Have at least a will, but preferably a living revocable trust. There is a common myth that trusts are only for the rich. A will designates who gets your assets and custody of your children, you can also designate additional caretakers for your children if something was to happen to both of you. There are two drawbacks to a will: you would go into probate court which costs thousands in court and lawyer fees to execute the terms of your will. Probate is a very long and drawn out process especially if you have a lot of assets. The second drawback is that you can’t leave assets and money to a minor, those assets will automatically go to their guardian. Nothing will tear a family apart more than having a family guardian spend all the money intended for your children.

A living revocable trust costs a little more that a will but in this case it is worth it as it will save you thousands in the long run. This trust is made when you’re “living” and can be changed to keep updated with your life changes.  All your assets gets placed in a trust to hold for your beneficiaries bypassing probate court.  Another benefit is the trust is named the beneficiary for minor children, it will protect their assets until they’re of legal age.  This tool isn’t just for the rich, you should have a trust if you have properties and minor children.

Have a health care directive so that your intentions are known. Health care is often an emotional decision. Although family members have the best intentions there will often be bickering and disagreements on your care. Make your intentions known with a health care directive and designate one person to have final say on your medical care. I witnessed what my father went through in his final years as he had a shitty quality of life, all because he never expressed what kind of care he wanted. There were many family arguments over him, as a result of this my wife and I both have directives.

Have term life insurance that covers at least your home and at least 2-3 times your annual income. You wouldn’t buy an index fund with your car insurance yet people often use life insurance as an investment. Whole life is a terrible investment, you should always get term. There are no steadfast rules of thumbs for insurance but I recommend enough to pay off your house and 2-3X household income (both salaries if you’re in a two family income) My friend who’s a police officer had a $250,000 life insurance policy, enough to pay off the house. I recommended him to increase it because they’re a two income household, if something happens to him his wife would be unable to work for a few months.  Losing a full income means they won’t be able to pay off the house and afford to live in their home.  As a result they would have to sell the house and uproot the children into a cheaper neighborhood.  Having sufficient life insurance allows your family time off to grieve without financial worries.

If you haven’t done these three things what are you waiting for?  Do you have a will or trust set up?

Comments

  1. Steven lau says:

    We have a will but I didn’t realize you couldn’t leave money to a minor. I’ll have to reconsider my estate plan.

  2. I have been procrastinating about this for years, with the flimsy excuse that we have no children yet. Must I have a kid before I actually get off my butt and get these docs in place?

    Thanks for the kick in the pants, Charles. I think my hesitation is that, other than my wife, I have no idea who I’d want our assets to go to if we both passed. It’d be complicated.
    Done by Forty recently posted…January Net Worth & Goals Update, and Guest Post InviteMy Profile

  3. I’m waiting until I have dependents to shell out for these additional protections.
    Stefanie @ The Broke and Beautiful Life recently posted…I Went to the Gym… And It Was AwfulMy Profile

  4. we have some basic protections for term life in place, but i feel like those need to be reassessed and now increased. sad story, it hits home that your time here is ultimately limited and one can go at anytime, i’m glad your b-in-law had all the steps covered.
    Integrator recently posted…What’s your investment philosophy?My Profile

  5. This is timely for us since its something I’ve been thinking about. We have term life insurance in place but we need to work out what we would want for our son if something happened to the both of us. It is just one of those things that no one wants to think about so it is easy to put it off. We don’t have a health care directive either, but I’m glad you mentioned it. It’s something we should get.
    Kay @ Green MoneyStream recently posted…7 Smart Strategies to Help Teach Your Kids About MoneyMy Profile

  6. We made sure to fill out wills and health care directives shortly after getting married. They became even more important, and needed updating shortly after our son was born. We also took out term life insurance at that time. Even though my wife and I earn about the same salary, the loss of either of our salaries would be a huge setback to our ability to afford our current lifestyle.
    Bryce @ Save and Conquer recently posted…History of Retirement in U.S.My Profile

  7. Life insurance is a must! After working in the mortuary industry for so long, I have seen far too many pass without any insurance at all. It leaves their families in such a bind.
    Holly@ClubThrifty recently posted…Embarrassing Ways to Save MoneyMy Profile

  8. Thanks for pointing these three things out. I actually have NONE of these, though life insurance is something that I have on my ‘to do’ list for this year.
    DC @ Young Adult Money recently posted…Three things to consider when shopping for your next vehicleMy Profile

  9. Smart advice, Charles. Interesting that your family is so financially smart all across the board – ours is largely the other way. :-(
    Laurie @thefrugalfarmer recently posted…What Do You REALLY Want?My Profile

  10. We have wills and lots of life insurance, and I’ve met with a trust lawyer, but just haven’t pulled the trigger on that one. I think my question that I need to have answered is do have to do the whole thing over if you sell or buy assets or is the fee a one time thing and it’s easy to add and subtract?
    Kim@Eyesonthedollar recently posted…Don’t Be Happy With Average When It Comes To RetirementMy Profile

  11. Very true Charles. I recently completed a class on Estate Planning and Wills, and one of the questions on the final was as simple as “What is the most important document you will prepare for a client?” with the answer being a Living Will. I took the knowledge and opportunities that class afforded me to create the will for my wife and myself. I think you’re right that people have no idea how the probate system works, and would be shocked into action if they did. I certainly was.

  12. My husband and I both have life insurance for the amount of our mortgages but I can definitely see the advantage of increasing it after reading this. We don’t have a health care directive or a living revocable trust. How much would these cost to set up in the first place?
    Hayley @ A Disease Called Debt recently posted…The emotional stages of debt: RegretMy Profile

  13. It’s hard to talk about death with family but you are right, it needs to be addressed. My parents have talked a lot about it with us.
    Poor Student recently posted…How to Negotiate Your First Job’s SalaryMy Profile

  14. Incredible post. Love reading your article very informative. Congratulations for this!

Trackbacks

  1. […] Some knowledge we take for granted, but Charles from Getting A Rich Life reminds us that many people still haven’t done The Three Financial Moves You Need To Protect Your Family. […]

Speak Your Mind

CommentLuv badge