My wife is a stay at home mom. What estate planning arrangments should I make to prevent her from needing to work if I die?
UPDATED: December 16, 2019
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Single-income homes are especially fragile with regard to losing the providing spouse, and extra steps should be taken to protect your family. In many of these families, a wife may have never even worked outside the home or obtained the education required to obtain a sustainable income. This issue is one that requires excellent estate planning through the use of life insurance and a trust, both excellent tools to protect your family.
Protect Your Family with Life insurance
Life insurance is an investment that ensures a payout if you die, which can serve to protect your family from the sometimes uncertainty of other types of investments. As a general rule, term life insurance is a better option for young people than whole life insurance as the cost is much less and the payout is much greater. In general, you should have enough life insurance to cover all debts. This includes your car, home, credit cards and any student loans. Life insurance will also need to cover your funeral and death costs. Estimates of these totals can be found online. The life insurance will also need to cover your annual income plus an additional 3% per year for inflation. Finally, to best protect your family it is always prudent to include college and emergency fund amounts. In general, most young family life insurance amounts will fall between $500,000 and 1 million dollars.
Protect Your Family With a Trust
If your wife is also not capable of making financial and investment decisions for the family, you should consider placing the life insurance funds into a trust. Because the funds will not go into effect until the event of your death, a trust placed in your will and specified on the life insurance forms is sufficient for transfer of the funds.
Placing the money in the trust ensures that it will be properly invested and will continue earning interest to further support your spouse and children. Also, be sure and include instructions on how the trustee is to release the trust funds. For example, your wife will receive a weekly living allowance to pay for any bills and living expenses. You may also want to specify any special circumstances for release of trust money such as unexpected medical expenses or to provide a vehicle for your children once they require one for transportation.
Finding ways to protect your family in the event of your death is a very important responsibility for you as the income provider. Trust documents are specialized legal documents that require very specific wording. If you do wish to set up a trust for your family, contact an estate planning attorney for a consultation.