Estate Planning: Safeguarding Your Family Amidst Unemployment

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Losing your job can be a challenging experience, especially in today’s economic climate marked by inflation and the subsequent downsizing of businesses. Many individuals find themselves facing unemployment as companies strive to reduce costs. However, rather than succumbing to the crisis mentality, you can view this situation as an opportunity to protect both yourself and your family. Here are three essential steps to take during this period of unemployment:

 

Assess Your Financial Situation

Instead of dwelling on the loss, shift your focus towards planning for the future. Start by thoroughly evaluating your finances to proactively address both the immediate crisis and your long-term financial well-being. Explore ways to maximize your resources and minimize expenses.

Remember that certain resources might be available to you if you were laid off through no fault of your own. Some employers provide severance packages, and unemployment benefits are often accessible for a limited period to bridge the gap until you secure a new job. Additionally, consider any accrued vacation or sick leave payouts that can provide temporary liquidity.

Create a comprehensive list of all your assets and their respective values. Some assets, such as accounts and properties, can be more easily converted into cash if necessary. As a last resort, liquidating these assets can help sustain your living expenses. Include items such as checking and savings accounts, investment accounts, retirement accounts, vehicles, boats, and real estate. If you have an emergency fund, rely on those funds first. Keep in mind that withdrawals from checking and savings accounts do not incur tax consequences. However, liquidating an investment account with appreciated value may lead to capital gains taxes, potentially up to 20% depending on your income and investment duration. Withdrawing cash from a retirement account may result in even higher tax liabilities, as the amount withdrawn can be taxed as ordinary income, subject to a potentially hefty rate, and possibly a 10% penalty.

Furthermore, compile a list of your debts and expenses to gain a complete understanding of your financial situation. Temporarily eliminate any non-essential expenses, such as streaming service subscriptions, cable television, or house cleaning services, to conserve your financial resources. By living on less, you can stretch your funds further, allowing for a more comfortable job search period. Creating a monthly budget, if you haven’t already, will help you minimize expenses and explore creative ways to adjust to a reduced income.

If you anticipate missing payments or needing to make reduced payments, reach out to your creditors. Many are willing to work with individuals facing financial hardships. Although this may negatively impact your credit rating, it can provide temporary relief. However, be prepared to invest effort in the future to improve your credit score.

 

Update Your Estate Plan

Life changes, whether positive or negative, necessitate updates to your estate plan. Losing a job is no exception. While you may typically think of updating your plan when experiencing positive changes like a higher-paying job or starting a family, it’s crucial to address negative changes promptly.

If your employer provided life insurance, it will likely terminate when you leave the job. Review your estate plan to determine the impact on your loved ones’ financial security. Adjust the beneficiaries and coverage amounts accordingly. For example, if you relied on life insurance funds held in a trust, ensure that any changes reflect the diminished financial circumstances. Additionally, if you’ve tapped into your savings account to cover expenses during unemployment, consider naming both children as beneficiaries of an insurance policy, rather than leaving one with a diminished savings account.

 

Establish an Estate Plan

If you don’t already have an estate plan in place, now is the time to prioritize its creation. Compile your lists of accounts and properties and consult an experienced estate planning attorney. This professional can assist you in establishing a basic estate plan that safeguards yourself, your family, and your assets. During the estate planning consultation, you will provide your financial information to aid in the process.

An estate plan plays a vital role in protecting your accounts and properties while minimizing expenses and taxes, thereby maximizing the inheritance for your family. Without a plan, state law determines the distribution of your assets. By having a will or trust, you retain the power to select beneficiaries and specify the assets they will inherit. Certain types of trusts can also shield your assets from creditors if established before any claims arise. Moreover, you can designate a caregiver for your minor children in the event of your illness or passing through your will or a separate document. To ensure your wishes are followed during a medical crisis, include essential documents such as powers of attorney, authorizing trusted individuals to make medical or financial decisions on your behalf, and a living will to guide medical choices.

Most importantly, an estate plan offers peace of mind to you and your family, eliminating the possibility of family conflicts and difficult decisions during an already stressful time. Seek the guidance of an estate planning attorney who can help create an affordable basic plan, which can be expanded upon once you secure new employment. Schedule a consultation today and let us assist you during this period of transition.