Q: I have a 2-year-old daughter. What is a good way of establishing a college fund for her, and about how much should I be setting aside?
A: The best way to get started is to figure out how much money you will need. When you see how much more you have to save each year, it’s a great incentive to start saving!
There are several ways to start saving now for your child’s college education. You can ask friends and relatives to include a small check along with any gift for birthdays and holidays. Then create a bank account specifically for these contributions and show your child how the balance is growing. Studies show that kids work harder at school when they see tangible evidence of college savings and the importance of their hard work.
Another option to consider is an Education IRA, which you can contribute to until your child reaches age 18. There are income limits, however, so you’ll need to find out if you qualify. If you sock away $500 each year (the maximum amount) in the Education IRA for 15 years and earn a 10 percent annual return, you’ll have $15,000 to help pay for your child’s education. Of this amount, you can withdraw $9,000 tax free.
You may also be eligible for a state education plan called the Prepaid Tuition Plan, also often called a U Plan or U Fund, which allows you to buy future college credits at today’s tuition. This Section 529 plan gives you another way to save for your child’s college expenses on a tax-advantage basis.
Q: Should I wait until I have a buyer for my house before putting a down payment on a new one?
A: This question is a lot more complicated than it once was, as mortgage lenders don’t offer “bridge loans” the way they used to. With bridge loans, the lender would lend you the down payment on your new house until your old house sold. So you could find your new house and even close on it before you had a seller for your old house. Those bridge loans are harder and harder to get.
The best thing to do is to become a smart house-shopper. At the same time that you are perusing neighborhoods and checking out schools for your new home, get the best information about how much your existing house will sell for and what small improvements you can make to it that will really increase its value. Ask a couple of experienced realtors to look at your current house and give you a market analysis. When you find the house you want to buy, you will have done everything in advance so that you can put your own house on the market immediately. Sometimes a seller will allow you to put a contingency in your agreement that you are not obligated to buy their house until you have a buyer for your own. Unfortunately, this practice is quickly becoming a thing of the past, so don’t count on it. On the flip side, if you sell your current house before you find a new one, your only real risk is finding temporary housing for a few months. If you have kids in school, you’ll need to make sure there is short-term rental property in their school district.
The bottom line? Know how much you can afford, get your current house ready to go on the market at a moment’s notice, get preapproved for a mortgage, and be ready to pounce when you find the house you want.
Q: Can I improve my financial situation by hiring a financial planner, even if I make less than $30,000 per year?
A: I admit that I am biased on this subject, but everybody needs a financial plan, and most people need a financial planner at some point in their lives. In fact, the less money you make, the fewer mistakes you can afford—and the more professional advice you need. But let’s distinguish between a financial plan and a financial planner. If you have a computer, enjoy using it, and are self-disciplined, I highly recommend using financial-planning software. The programs available today are inexpensive (unlike back in the 1980s, when they cost about $10,000), follow an easy question-and-answer format, and have fun features like DB2 graphs, year-by-year projections, and easy ways to play scenario games. (What if I retire three years earlier; what if my child goes to a public college instead of a private one; what if I inherit $1 million, or $1,000; what if my company’s stock takes off, or what if it tanks?) These programs go a long way toward helping people plan their financial futures.
Now here’s the value of a professional financial planner: This person can act as an impartial mediator to help you and your spouse or partner work better together with your money. A financial planner can make you feel more accountable about your spending and saving and can prod you nicely to meet with him or her on a regular basis to keep you on track. I have been a financial planner for 25 years, but even so I don’t trust all of my own investment and financial decisions to myself. Simply put, I’m too emotional because it’s my money. Objectivity is one of the best things a financial planner can give you. (Plus, your family has someone else to blame besides you for making certain financial decisions that may not have worked out!)
Q: What potential tax benefits do home equity loans offer? What are the dangers?
A: Home equity loans often offer the advantage of tax-deductible interest. If you are making home improvements, a home equity loan is an ideal way to do this. Home equity loans usually have a lower interest rate than consumer loans, such as credit cards and auto loans. The danger is, this makes it tempting to transfer that debt to a home equity loan. Studies often show that within a couple of years, people who do this will have just as much or more credit card and consumer loans than before, but on top of a high home equity loan. So don’t transfer your consumer debt to a home equity loan unless you are committed to paying it off as quickly as possible and not running up those credit cards again.
Q: I live in an area where homes seem overpriced. Even though I can afford to buy a house, would it make more sense for me to continue renting until the market cools off?
A: It’s always hard to know when housing prices are on the way up, at their peak, or about to plunge. Historically, residential real estate has been a very good investment, but the values can fluctuate a lot from year to year. And it’s not a liquid investment; if you are strapped for cash, you can’t just decide to sell your house and have money in a week, as you would be able to do if you were selling stocks or cashing in a money-market account. Here are some things to consider in deciding whether to rent or buy:
* What is your local economy like? Is it still red-hot with a few signs of slowing down? A red-hot economy usually means house prices are rising rapidly, and you may have to wait awhile before those prices come down from the stratosphere. If there are signs that local companies may be having difficulties, you may want to wait a few months and see if house prices go down.
* What time of year is it? Historically, house prices are lowest in the winter.
* How long do you plan to stay in the house? Renting may be the preferred housing choice if you don’t expect to live in a place for more than a few years.
* What’s your tax bracket? If it’s less than 28 percent, all those great interest deductions you get from home interest may not make it worth it for you.
* Are apartments plentiful and cheap compared to houses? It may be that you live in an area of the country with a glut of apartments with bargain rents.
* How much of a down payment would you have? If it’s less than 20 percent of the value of the house, you have to buy extra insurance called private mortgage insurance, which can be pricey. However, there are some great programs, especially for first-time home buyers.
The bottom line? Do some research to find out about home prices in your area. Talk to a mortgage broker or bank to find out how much mortgage you would qualify for and what the monthly payment would be. Ask this mortgage expert to help you figure out whether you are better off buying or renting for now.
I firmly believe in getting your foot in the real estate market as early as possible in life. That way, what you buy will hopefully appreciate in value and make it possible for you to keep trading up houses as your needs grow. Ask any long-time homeowners if it’s been a good investment, and unless they’re dot-com millionaires they will probably tell you there is no way they could have afforded the house they own now if they hadn’t started small many years ago.
Q: I’m 34 years old and in good health. I have a great career, as well as two young children. My husband is a stay-at-home dad. About how much life insurance do I need?
A: You might hear all kinds of rules of thumb, such as the one that says you should have life insurance for five times your annual income. The problem is, life is a lot more complicated than a rule of thumb.
Some of the things you need to think about: your children’s college and other educational expenses, how much Social Security survivor benefits your family would receive, medical and funeral expenses, how much it would cost to pay off your mortgage and other debts, and any special needs, such as financial support for your parents or other relatives. Also consider how much you and your husband would be earning after taxes and child-care expenses if your husband were to go back to work part or full time.
Then there are the assets that you have that would reduce your need for insurance. These assets include retirement plans, other investment accounts, and other sources of money such as inheritances. (But you can’t count on inheritances unless they are guaranteed and in your hands because relatives can always change their minds, especially if you aren’t around anymore and your spouse has remarried.)
Now do you see why rules of thumb are made to be broken? I have worked with many young widows with young children during my career as a financial planner, and I urge you to figure out how much insurance your family needs. Then go for it! You can even shop for insurance on the Web, and more and more companies are offering “low load” (no commission) insurance if you don’t use an agent. But please be fair and ethical; if an agent gives you good advice, you should pay them, either by an hourly fee or by buying the insurance through them.
Permanent insurance pays a much higher commission to agents and can be helpful if you have a long-term insurance need such as a hefty estate-tax bill. It’s also a good way to go if you’ve got lots of extra cash, you are fully funding all of your retirement plans, and you are saving enough for all of your other goals. Otherwise, your focus should be on buying all the insurance you need as term insurance.
Q: I recently received a pay raise at work. Would I be better off paying down some of my home mortgage or paying off my car loan completely?
A: You are smart to want to pay down debt instead of blowing that pay raise on a trip or new clothes, as so many people do in the excitement of getting a raise. But before you pay down debt, here are some other things to consider:
* Are you contributing every dollar you can to your company 401(k) plan or other tax-deferred retirement savings plans? This question is especially important if your employer kicks in money when you contribute.
* Are you also putting money in IRAs, if you qualify? Most people qualify for either a tax-deductible IRA or a Roth IRA even if they are contributing money to their company retirement plan.
* Do you have an emergency fund equal to about three months’ expenses, so if an unexpected roof leak, dental bill, or job loss hits, you’ve got something to fall back on?
* If you have other goals such as saving for college, are you saving money regularly for that?
You don’t have to answer yes to all of these questions, but you do need to think about them before you decide to use your extra money to pay down debt. If your car loan is at 7 percent interest or more, consider paying it off unless you can deduct it for business purposes. I never recommend prepaying a mortgage because that means giving up an interest deduction on your tax form (a nice perk of being a homeowner).
Other financial planners might disagree, saying you could invest that money and get a rate of return that’s higher than the interest rate you’d be saving by paying it off. But here’s my most important advice about not prepaying your mortgage: The more home equity you have and the less cash, the less flexibility you have. It’s great to retire with a debt-free house, but if you don’t have money in the bank, how are you going to pay for food and other living expenses? You can always decide to pay down your mortgage later, when you are sure that you will have enough investments to cover your living expenses when you retire, or if you decide that you are going to sell your house so you can buy something cheaper or rent. If you want to stay in your house when you retire but won’t have that spending cash, there is an alternative: You can take out a reverse mortgage, essentially borrowing on your own home equity and paying interest for the privilege. The more liquid assets you have, the more flexibility you have to meet life’s surprises. These questions are not just about money—they’re about how you want to live your life.
Q: When should I consider refinancing my house loan?
A: The rule of thumb used to be that you should consider refinancing your home loan when the current interest rate is 2 percent less than your existing rate. But with so many different kinds of mortgages and different arrangements for closing costs and those other up-front fees, no one rule of thumb applies in all cases.
Your best bet is to ask your local bank or mortgage lender to prepare a refinancing analysis for you that shows you how long you would have to live in your house to make the refinancing worthwhile. If you are planning to move within the next couple of years, it probably doesn’t make sense to refinance, even if the interest rates drop.
The kicker in refinancing is the amount of closing costs and other costs—appraisal, credit reports, and any “points.” (A point equals 1 percent of the amount of your mortgage and is considered prepaid interest. The more points you pay up front, the lower the interest rate on the loan.) Ask your bank or broker how long it would take before you would break even if you paid no cash up front and financed all of these costs. Then ask how long it would take if you paid 1 percent up front, or any other financing arrangement that’s attractive to you. The only way you can really make a decision is to crunch the numbers, and these numbers are so complicated that your bank or broker should crunch them for you. It’s a good idea to start with your existing mortgage lender because they may offer you lower closing costs just for using them again. Another lender may offer a lower interest rate, however. Also, make sure to look at your credit report before they quote interest rates because your credit history can make a major difference.
Q: I have some stock options with my employer, who also matches my 401(k) contribution with company stock. I don’t have any other investments, and I’m 25 years old. Should I sell some of my shares now even if I’m pretty sure they will continue to go up?
A: Yes! It’s exciting when your company is doing well and the stock price is going up, but it’s another story when the stock price goes the other way. You are vulnerable because you have all your investment eggs in one basket. Even though you are young, that’s too much risk to take. No one stock should make up more than 5 percent of your total investments. If your company will match your 401(k) contribution only with its own stock, you don’t have much choice. However, do not buy company stock with the money you are putting in your retirement plan. Pick a mutual fund that invests in a large number of U.S. stocks, such as a Standard and Poor’s 500 Index fund. This gives you lots of diversification so if one company tanks, your balance sheet doesn’t tank with it. As far as your stock options are concerned, ask your employee benefits person to give you an analysis showing you the tax consequences of exercising and selling your stock.
Q: When should I write a will, and how can I get started?
A: If you are an adult, you need a will. You may not think so if you don’t own any property, but a will does a lot more than just decide who gets the couch and the silverware. In a will you appoint an executor who is responsible for settling your estate, which means filing all the forms—tax and legal—required. If you have children, your will names the guardians of your choice. If you don’t have a will upon your death, you actually still have an estate plan. The problem is, that estate plan has been designed by your state legislature, and the government will be the executor of your estate. So if you die without a will, your wishes are not legally known, and even relatives you really don’t like could end up benefiting from your death.
I would suggest starting with the will-writing computer software that is now available, with specific instructions about how to prepare, sign, and have your legal documents witnessed so that they will meet your state laws. I always recommend having a lawyer look over these program-generated documents, however.
There are other things to consider, too. You don’t only need a will, you also need a durable power of attorney that appoints someone else to make legal decisions for you if you aren’t able to yourself. You also need a “living will” that tells your doctors and your family how much medical treatment you want, as well as a health-care proxy that gives the person you name the right to make medical decisions on your behalf. All of this is complicated, and every state law is different. So start with will-writing software, but get an expert to review it before you make it legal.
A: The best way to get started is to figure out how much money you will need. When you see how much more you have to save each year, it’s a great incentive to start saving!
There are several ways to start saving now for your child’s college education. You can ask friends and relatives to include a small check along with any gift for birthdays and holidays. Then create a bank account specifically for these contributions and show your child how the balance is growing. Studies show that kids work harder at school when they see tangible evidence of college savings and the importance of their hard work.
Another option to consider is an Education IRA, which you can contribute to until your child reaches age 18. There are income limits, however, so you’ll need to find out if you qualify. If you sock away $500 each year (the maximum amount) in the Education IRA for 15 years and earn a 10 percent annual return, you’ll have $15,000 to help pay for your child’s education. Of this amount, you can withdraw $9,000 tax free.
You may also be eligible for a state education plan called the Prepaid Tuition Plan, also often called a U Plan or U Fund, which allows you to buy future college credits at today’s tuition. This Section 529 plan gives you another way to save for your child’s college expenses on a tax-advantage basis.
Q: Should I wait until I have a buyer for my house before putting a down payment on a new one?
A: This question is a lot more complicated than it once was, as mortgage lenders don’t offer “bridge loans” the way they used to. With bridge loans, the lender would lend you the down payment on your new house until your old house sold. So you could find your new house and even close on it before you had a seller for your old house. Those bridge loans are harder and harder to get.
The best thing to do is to become a smart house-shopper. At the same time that you are perusing neighborhoods and checking out schools for your new home, get the best information about how much your existing house will sell for and what small improvements you can make to it that will really increase its value. Ask a couple of experienced realtors to look at your current house and give you a market analysis. When you find the house you want to buy, you will have done everything in advance so that you can put your own house on the market immediately. Sometimes a seller will allow you to put a contingency in your agreement that you are not obligated to buy their house until you have a buyer for your own. Unfortunately, this practice is quickly becoming a thing of the past, so don’t count on it. On the flip side, if you sell your current house before you find a new one, your only real risk is finding temporary housing for a few months. If you have kids in school, you’ll need to make sure there is short-term rental property in their school district.
The bottom line? Know how much you can afford, get your current house ready to go on the market at a moment’s notice, get preapproved for a mortgage, and be ready to pounce when you find the house you want.
Q: Can I improve my financial situation by hiring a financial planner, even if I make less than $30,000 per year?
A: I admit that I am biased on this subject, but everybody needs a financial plan, and most people need a financial planner at some point in their lives. In fact, the less money you make, the fewer mistakes you can afford—and the more professional advice you need. But let’s distinguish between a financial plan and a financial planner. If you have a computer, enjoy using it, and are self-disciplined, I highly recommend using financial-planning software. The programs available today are inexpensive (unlike back in the 1980s, when they cost about $10,000), follow an easy question-and-answer format, and have fun features like DB2 graphs, year-by-year projections, and easy ways to play scenario games. (What if I retire three years earlier; what if my child goes to a public college instead of a private one; what if I inherit $1 million, or $1,000; what if my company’s stock takes off, or what if it tanks?) These programs go a long way toward helping people plan their financial futures.
Now here’s the value of a professional financial planner: This person can act as an impartial mediator to help you and your spouse or partner work better together with your money. A financial planner can make you feel more accountable about your spending and saving and can prod you nicely to meet with him or her on a regular basis to keep you on track. I have been a financial planner for 25 years, but even so I don’t trust all of my own investment and financial decisions to myself. Simply put, I’m too emotional because it’s my money. Objectivity is one of the best things a financial planner can give you. (Plus, your family has someone else to blame besides you for making certain financial decisions that may not have worked out!)
Q: What potential tax benefits do home equity loans offer? What are the dangers?
A: Home equity loans often offer the advantage of tax-deductible interest. If you are making home improvements, a home equity loan is an ideal way to do this. Home equity loans usually have a lower interest rate than consumer loans, such as credit cards and auto loans. The danger is, this makes it tempting to transfer that debt to a home equity loan. Studies often show that within a couple of years, people who do this will have just as much or more credit card and consumer loans than before, but on top of a high home equity loan. So don’t transfer your consumer debt to a home equity loan unless you are committed to paying it off as quickly as possible and not running up those credit cards again.
Q: I live in an area where homes seem overpriced. Even though I can afford to buy a house, would it make more sense for me to continue renting until the market cools off?
A: It’s always hard to know when housing prices are on the way up, at their peak, or about to plunge. Historically, residential real estate has been a very good investment, but the values can fluctuate a lot from year to year. And it’s not a liquid investment; if you are strapped for cash, you can’t just decide to sell your house and have money in a week, as you would be able to do if you were selling stocks or cashing in a money-market account. Here are some things to consider in deciding whether to rent or buy:
* What is your local economy like? Is it still red-hot with a few signs of slowing down? A red-hot economy usually means house prices are rising rapidly, and you may have to wait awhile before those prices come down from the stratosphere. If there are signs that local companies may be having difficulties, you may want to wait a few months and see if house prices go down.
* What time of year is it? Historically, house prices are lowest in the winter.
* How long do you plan to stay in the house? Renting may be the preferred housing choice if you don’t expect to live in a place for more than a few years.
* What’s your tax bracket? If it’s less than 28 percent, all those great interest deductions you get from home interest may not make it worth it for you.
* Are apartments plentiful and cheap compared to houses? It may be that you live in an area of the country with a glut of apartments with bargain rents.
* How much of a down payment would you have? If it’s less than 20 percent of the value of the house, you have to buy extra insurance called private mortgage insurance, which can be pricey. However, there are some great programs, especially for first-time home buyers.
The bottom line? Do some research to find out about home prices in your area. Talk to a mortgage broker or bank to find out how much mortgage you would qualify for and what the monthly payment would be. Ask this mortgage expert to help you figure out whether you are better off buying or renting for now.
I firmly believe in getting your foot in the real estate market as early as possible in life. That way, what you buy will hopefully appreciate in value and make it possible for you to keep trading up houses as your needs grow. Ask any long-time homeowners if it’s been a good investment, and unless they’re dot-com millionaires they will probably tell you there is no way they could have afforded the house they own now if they hadn’t started small many years ago.
Q: I’m 34 years old and in good health. I have a great career, as well as two young children. My husband is a stay-at-home dad. About how much life insurance do I need?
A: You might hear all kinds of rules of thumb, such as the one that says you should have life insurance for five times your annual income. The problem is, life is a lot more complicated than a rule of thumb.
Some of the things you need to think about: your children’s college and other educational expenses, how much Social Security survivor benefits your family would receive, medical and funeral expenses, how much it would cost to pay off your mortgage and other debts, and any special needs, such as financial support for your parents or other relatives. Also consider how much you and your husband would be earning after taxes and child-care expenses if your husband were to go back to work part or full time.
Then there are the assets that you have that would reduce your need for insurance. These assets include retirement plans, other investment accounts, and other sources of money such as inheritances. (But you can’t count on inheritances unless they are guaranteed and in your hands because relatives can always change their minds, especially if you aren’t around anymore and your spouse has remarried.)
Now do you see why rules of thumb are made to be broken? I have worked with many young widows with young children during my career as a financial planner, and I urge you to figure out how much insurance your family needs. Then go for it! You can even shop for insurance on the Web, and more and more companies are offering “low load” (no commission) insurance if you don’t use an agent. But please be fair and ethical; if an agent gives you good advice, you should pay them, either by an hourly fee or by buying the insurance through them.
Permanent insurance pays a much higher commission to agents and can be helpful if you have a long-term insurance need such as a hefty estate-tax bill. It’s also a good way to go if you’ve got lots of extra cash, you are fully funding all of your retirement plans, and you are saving enough for all of your other goals. Otherwise, your focus should be on buying all the insurance you need as term insurance.
Q: I recently received a pay raise at work. Would I be better off paying down some of my home mortgage or paying off my car loan completely?
A: You are smart to want to pay down debt instead of blowing that pay raise on a trip or new clothes, as so many people do in the excitement of getting a raise. But before you pay down debt, here are some other things to consider:
* Are you contributing every dollar you can to your company 401(k) plan or other tax-deferred retirement savings plans? This question is especially important if your employer kicks in money when you contribute.
* Are you also putting money in IRAs, if you qualify? Most people qualify for either a tax-deductible IRA or a Roth IRA even if they are contributing money to their company retirement plan.
* Do you have an emergency fund equal to about three months’ expenses, so if an unexpected roof leak, dental bill, or job loss hits, you’ve got something to fall back on?
* If you have other goals such as saving for college, are you saving money regularly for that?
You don’t have to answer yes to all of these questions, but you do need to think about them before you decide to use your extra money to pay down debt. If your car loan is at 7 percent interest or more, consider paying it off unless you can deduct it for business purposes. I never recommend prepaying a mortgage because that means giving up an interest deduction on your tax form (a nice perk of being a homeowner).
Other financial planners might disagree, saying you could invest that money and get a rate of return that’s higher than the interest rate you’d be saving by paying it off. But here’s my most important advice about not prepaying your mortgage: The more home equity you have and the less cash, the less flexibility you have. It’s great to retire with a debt-free house, but if you don’t have money in the bank, how are you going to pay for food and other living expenses? You can always decide to pay down your mortgage later, when you are sure that you will have enough investments to cover your living expenses when you retire, or if you decide that you are going to sell your house so you can buy something cheaper or rent. If you want to stay in your house when you retire but won’t have that spending cash, there is an alternative: You can take out a reverse mortgage, essentially borrowing on your own home equity and paying interest for the privilege. The more liquid assets you have, the more flexibility you have to meet life’s surprises. These questions are not just about money—they’re about how you want to live your life.
Q: When should I consider refinancing my house loan?
A: The rule of thumb used to be that you should consider refinancing your home loan when the current interest rate is 2 percent less than your existing rate. But with so many different kinds of mortgages and different arrangements for closing costs and those other up-front fees, no one rule of thumb applies in all cases.
Your best bet is to ask your local bank or mortgage lender to prepare a refinancing analysis for you that shows you how long you would have to live in your house to make the refinancing worthwhile. If you are planning to move within the next couple of years, it probably doesn’t make sense to refinance, even if the interest rates drop.
The kicker in refinancing is the amount of closing costs and other costs—appraisal, credit reports, and any “points.” (A point equals 1 percent of the amount of your mortgage and is considered prepaid interest. The more points you pay up front, the lower the interest rate on the loan.) Ask your bank or broker how long it would take before you would break even if you paid no cash up front and financed all of these costs. Then ask how long it would take if you paid 1 percent up front, or any other financing arrangement that’s attractive to you. The only way you can really make a decision is to crunch the numbers, and these numbers are so complicated that your bank or broker should crunch them for you. It’s a good idea to start with your existing mortgage lender because they may offer you lower closing costs just for using them again. Another lender may offer a lower interest rate, however. Also, make sure to look at your credit report before they quote interest rates because your credit history can make a major difference.
Q: I have some stock options with my employer, who also matches my 401(k) contribution with company stock. I don’t have any other investments, and I’m 25 years old. Should I sell some of my shares now even if I’m pretty sure they will continue to go up?
A: Yes! It’s exciting when your company is doing well and the stock price is going up, but it’s another story when the stock price goes the other way. You are vulnerable because you have all your investment eggs in one basket. Even though you are young, that’s too much risk to take. No one stock should make up more than 5 percent of your total investments. If your company will match your 401(k) contribution only with its own stock, you don’t have much choice. However, do not buy company stock with the money you are putting in your retirement plan. Pick a mutual fund that invests in a large number of U.S. stocks, such as a Standard and Poor’s 500 Index fund. This gives you lots of diversification so if one company tanks, your balance sheet doesn’t tank with it. As far as your stock options are concerned, ask your employee benefits person to give you an analysis showing you the tax consequences of exercising and selling your stock.
Q: When should I write a will, and how can I get started?
A: If you are an adult, you need a will. You may not think so if you don’t own any property, but a will does a lot more than just decide who gets the couch and the silverware. In a will you appoint an executor who is responsible for settling your estate, which means filing all the forms—tax and legal—required. If you have children, your will names the guardians of your choice. If you don’t have a will upon your death, you actually still have an estate plan. The problem is, that estate plan has been designed by your state legislature, and the government will be the executor of your estate. So if you die without a will, your wishes are not legally known, and even relatives you really don’t like could end up benefiting from your death.
I would suggest starting with the will-writing computer software that is now available, with specific instructions about how to prepare, sign, and have your legal documents witnessed so that they will meet your state laws. I always recommend having a lawyer look over these program-generated documents, however.
There are other things to consider, too. You don’t only need a will, you also need a durable power of attorney that appoints someone else to make legal decisions for you if you aren’t able to yourself. You also need a “living will” that tells your doctors and your family how much medical treatment you want, as well as a health-care proxy that gives the person you name the right to make medical decisions on your behalf. All of this is complicated, and every state law is different. So start with will-writing software, but get an expert to review it before you make it legal.
