1. Execute a will. Estate planning isn’t just for wealthy older people. If you’re an adult, you need an estate plan. This spells out what happens to your immovable and movable property when you die. While the state legislature provides default rules for people who don’t specify their intentions, (intestate) you might be surprised by what those rules say. For the average person, an estate plan is simply a will (or “last will and testament”). This document spells out who gets what from your estate. A handwritten will can be valid, but it’s safer to have a lawyer draft your will and help you through the formal execution ceremony. If you have a spouse or minor children, you need a will to ensure they are properly taken care of and guardians and alternative guardians named.
2. Designate your health care wishes. How should medical decisions be made for you in the event of an accident or illness where you are incapable of communicating? Without the appropriate legal papers, your family will attempt to make the decisions that you would want. But do they know all your wishes? You should protect your health care decisions by appointing someone with a Health Care Power of Attorney. This designates the person who will make your decisions. They are bound to make the decisions that you want, not what they think is best. You should also execute a Health Care Directive (sometimes called a Living Will). This document attempts to set forth your wishes for different medical scenarios, particularly your wishes with regard to terminal illnesses. Your health care provider will be bound to act according to this document.
3. Select the correct insurance beneficiaries. Do you have a life insurance policy or retirement plan? Who are your beneficiaries? If “your estate” is listed as the beneficiary, your heirs could be in for a surprise when you pass away. Life insurance and retirement plans automatically pay the designated beneficiary when the policy holder dies. To make sure your family or other heirs get the benefits, you should designate them by name as the beneficiaries. If your estate gets paid directly, the true beneficiaries could be in for a long wait before they can be paid anything. And your creditors might claim the money before anyone else can be paid. Be sure to name the right beneficiaries.
4. Be properly and sufficiently insured. Property insurance isn’t just for homeowners. Even if you rent, you need insurance protection. Homeowner’s or renter’s insurance primarily covers against loss to your property due to damage or theft. But it can also be important if you’re ever sued.When guests come onto your property, you legally take on a certain amount of liability for their safety. If a guest is injured while on your property, you could be held responsible. Fortunately, the typical property insurance policy provides some protection for you. Guest medical coverage will pay for your guest’s medical bills as well as liability coverage for pain and suffering in event of a personal injury claim or suit. For the cost of a renter’s insurance policy (at most $15/month), you can’t afford to neglect this coverage.Also make sure you have adequate limits on auto liability $500,000 is well worth the extra dollars in cost. Also ensure you have adequate uninsured/underinsured coverage in the same amount. If you have an older car and have collision and comprehensive coverage, you are wasting money, cancel it. You may also want to consider umbrella coverage of up to 1 mill. to give overall protection to your assets.
5. Separate your business. If you run your own business, you should consider a limited liability business entity or S Corp. Running a sole proprietorship is simple, but it exposes you and your family to certain risks and liabilities. Creditors and people you could possibly wrong can seek a cause of action against you personally. Your sole proprietor business could be putting the family home at risk. To solve this problem, you can easily setup a basic corporation or a limited liability company (LLC). Then when you sign contracts and incur business debts, you are only putting the business at risk. It’s important to run the business properly to maintain your liability shield.
(Such as having proper meetings with minutes kept, separate bank accounts, etc.) Without a formal business entity, you have no hope of limiting your personal liability. Your CPA can advise you in this regard as well.