Legal issues don’t have to be stressful. In fact, you can use the law to reduce your risk, eliminate uncertainty, and plan for the unthinkable. The law can help with your overall peace of mind.
1. Execute a will
Estate planning isn’t just for wealthy old people. If you’re an adult, you need an estate plan. This spells out what happens to your property when you die. While the state legislature provides default rules for people who don’t specify their intentions, 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. Your handwritten will can be valid, but it’s safest to have a lawyer draft your will and walk you through the formal execution ceremony. If you have a spouse or children, you need a will to ensure they are properly taken care of and guardians and alternative guardians for minor children named.
2. Designate your health care wishes
How should medical decisions be made for you in the event of an accident or illness? Without the appropriate legal papers, your next of kin will attempt to make the decisions that you would want. But does he/she 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.
To go the extra mile, you should execute a Living Will. This document attempts to set forth your wishes for different medical scenarios. Then your health care provider will be bound to act according to this document. If you neglect both of these health care documents, your life might be in the hands of someone who may not carry out your wishes.
3. Select the correct 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 this money, 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. Make sure your limits are more than adequate.
Also make sure you have adequate limits on auto and homeowners liability, $500,000 is well worth the extra dollars in cost. Also ensure you have adequate uninsured/underinsured auto coverage. If you have an older car and have collision and comprehensive coverage, you are wasting money, cancel it. Consider the different costs for highter deductibles. You may also want to consider umbrella coverage 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 have possibly wronged make a claim against you personally. Your 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.
