You don't have to be a zombie fan to enjoy watching AMC's The Walking Dead. The show follows a group of survivors of the zombie apocalypse as they travel across the country finding ways to survive in a new world. Although the likelihood of an actual zombie apocalypse occurring in the near future (if at all) is pretty low, it does make you consider if you are financially prepared for the end of life.
There are several misconceptions that hover around end of life financial planning. One is that only older people need to worry about end of life planning. Another is that estate planning is only for wealthy individuals. The truth is there are various levels of planning that can be done by everyone, regardless of their age or financial situation.,
According to LegalZoom, approximately 55% of American adults currently do not have a will or other estate plan in place, and if you asked any of them why not I am betting they would respond that they are not wealthy, they are too young, they don't have time or they don't know how. Dying without a will can leave your family in distress, cause your assets not to be divided the way you want, or even be tied up in probate for an extended period of time.
Will basics
A will is a legal document drafted by an individual that sets forth their wishes to be acted upon at their death. A will can cover a variety of topics, including distribution of assets, guardianship of minor children, or whether to be buried or cremated. A will is especially important for individuals that want to make specific bequests at death such as leaving money to charity or leaving assets to children.
When is the right time to draft a will? My answer has always been when a married couple has their first child, and the reason being that once a child is brought into the mix, there are considerations to be made regarding guardianship and the transfer of assets in the event that both parents passed away unexpectedly. But there really is no "right" time to draft a will, because once you have at least one asset, such as a bank account or a car, you need to dictate how that asset is handled upon your death.
Trusts
This is another term that people generally associate with wealth. However, trusts can be used by anyone to distribute property or protect assets at the end of life. There are two terms related to trusts in this situation that you need to be familiar with: revocable and irrevocable. A revocable trust is a trust that can be set up while an individual is still living and is a "disregarded entity" meaning that the assets and income still belong to the individual. An irrevocable trust is the opposite. Although it can be set up during life, once assets are transferred to an irrevocable trust, there is no taking them back, and the assets and income belong to the beneficiary.
A revocable trust is a good vehicle to use if you want to continue using assets but have transferred in a specific way at the end of life. For example, John and Jane Doe create the John and Jane Doe Revocable Trust and transfer an investment property into the trust. In the trust document, John and Jane specify that at their death, their 2 children become the 50/50 beneficiaries of the trust. John and Jane still technically own the asset and they have to recognize any income or loss from the asset on their individual income tax return each year. But, upon their death, their two children become the beneficiaries of the trust and technically own the asset.
An irrevocable trust is used especially well in a gifting situation where an individual is looking to decrease their estate. For example, let's say an individual with significant assets wants to transfer (i.e. give) assets to their child or grandchild in trust. The individual can create an irrevocable trust and name the child or grandchild as beneficiary, then transfer assets into the trust. The best part is, if the assets transferred are less than or equal to the gifting dollar limit for that year ($14,000 for 2014), then the assets are removed from the individual's estate, the assets become available for the beneficiaries use, and there is no gift tax due.
Trusts can also be used in a will to handle assets left to minor children. For example, if you own a rental property, you probably don't want to leave it outright to a 3-year-old child. Within a will though, bequests can be made into trusts for the benefit of minor children but managed by someone else (a trustee) until the child reaches a certain age.
DIY vs. professional help
Drafting a simple will is very easy to do yourself. There are online resources such as LegalZoom where you can draft a will online, print, sign, and store for future use. For a slightly more advanced experience, you can buy a software such as Quicken WillMaker that you can install on your computer. If you have a good handle on your assets and how you want your affairs handled, either of these options will work.
If your situation is more complicated, then it is best to meet with an attorney and/or CPA. An attorney can advise you on the best way to organize your affairs within the legal structure of the state where you live, as well as draft documents and set up trusts. CPAs are a good resource for getting a handle on your financial situation as well as administering trusts, etc. once they are set up. One word of caution: attorneys are not accountants, and accountants are not attorneys. If you do choose to seek professional advice, make sure you are using someone that is proficient in that area.
Now, if the zombie apocalypse does come, there's no way to know if all of these legal documents will hold up in court during the zombie reign. But, by having some form of end of life planning, regardless of your financial situation, you will sleep better at night knowing that your wishes will be carried out and that your loved ones will be taken care of.