Planning for Trouble: Money and Estate Tips for Every Age

Family money problemsPlanning for death, disability, or other personal tragedies is the last thing you may want to think about. Yet not planning for those contingencies can leave families dealing with highly tense issues at times when they're least able to handle the additional stress.

Many people put off doing estate planning on the grounds that it's too complicated. But it's not that difficult, and the right moves can save both you and your family a lot of trouble down the road.

Here are things to keep in mind for various stages in life.

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Planning for Trouble: Money and Estate Tips for Every Age

Even if you're single and don't have any dependents, some basic planning will still make your parents' lives easier if something happens to you. By giving them or some other trusted person power of attorney for health care, they'll be able to make decisions about your medical care when you're unable to do so. Similarly, setting up bank accounts and other assets either as joint accounts or with chosen beneficiaries to receive your property after your death could help your loved ones avoid a costly probate proceeding.

Once you're part of a couple, you'll want to consider changes to recognize your significant other. If you're married, then certain legal protections are automatic, although formalizing them with appropriate documents is still smart. If you're not married, though, drafting wills or trusts to cover what happens to assets after your death, as well as financial and health-care powers of attorney to help others take care of your affairs if you're incapacitated, are musts.

Regardless of whether you're part of a couple or a single parent, changing your planning documents is a critical to-do. Some states automatically give a child a piece of your estate after you die, so it's always worth checking to make sure nothing strange will happen under your state's laws.

Two things are most important, though. First, you'll want to change your will to name a guardian for your child in case you die. Second, in order to avoid court supervision of your child's assets if something happens to you, putting in provisions for a trust to receive the child's inheritance from your estate ensures that someone will take responsibility for managing inherited assets on the child's behalf.

If you later have more children, all the same issues apply, but the big new question you have to answer is how you want to treat them. Many families prefer to treat all their children equally. But in some cases, such as when one child has special needs, such an arrangement doesn't really make sense.

State law typically puts all children on an equal footing in estate-planning documents, so you'll want to be explicit about any special provisions you may make for one child over another. Whether you use a simple strategy like setting up a separate account with additional funds for a particular child or set up a specialized trust to reflect your wishes, the right documents can minimize unnecessary squabbles later.

Once your children reach adulthood, they're legally able to hold assets in their own name. But some parents prefer not to leave a lump-sum inheritance for their kids, instead setting up trusts to pay out certain amounts at various ages or for specific purposes. Such trusts serve two main purposes: they keep your kids from spending too much too quickly, and they can help protect assets from potential claims if your child goes through divorce.

If your kids have children of their own, it introduces a new set of opportunities and pitfalls from the standpoint of family dynamics. You may want to provide for your grandkids, but you also don't want to step on your children's toes in their parental role.

From tax-free educational gifts to outright bequests, there are plenty of ways you can provide for grandkids. However you choose to set things up, the key is communicating openly with your family to make sure they understand what you're doing and can give feedback. In the end, the decision is yours, but by taking their thoughts into account, you can do your best to come up with a solution that works for everyone.


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You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger.
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