Typically, it's best to store these kinds of documents in a fireproof safe, filing cabinet, or other secure location in your home. Ideally, you'll also want to save digital copies of these documents on a computer, external hard drive, and/or cloud-based device.
Once you have your important documents saved in a centralized location, you should share this, as well as any lock codes or passwords needed to access it, with a trusted family member.
Some specific examples of documents you'll want to have gathered and securely stored include:
- Birth certificates
- Social Security cards
- Marriage certificates
- Insurance policy paperwork
- Copies of tax returns
- Financial/bank statements
- Password lists
Sorting through your important documents also provides an excellent opportunity to make sure that appropriate beneficiaries are named on things like bank accounts and retirement plans.
Wills & trusts
It's also a good idea to have a will and/or trust, which gives you the opportunity to name who you want your money and assets (such as real estate and other property) to go to after you pass away. Both wills and trusts can establish beneficiaries for your assets, but there are some important differences.
Most importantly, a will names an executor (somebody who will carry out your will after you pass) whereas a trust does not. A will is necessary if you want to designate a legal guardian for any minor children after you pass. A trust, on the other hand, does not require probate like a will generally does—and it keeps information out of public record.
Speaking of executors, make sure you name somebody that you can trust to carry out the terms of your will. Ideally, this will be somebody who is responsible and reliable, as well as ethical and organized. It's never a bad idea to name a backup executor on your will in case your first choice is unable or unwilling to serve in the future.
If you want to have a preemptive say in your health care in the event that you become unable to make your own wishes known, you'll also want to set up a living will, which provides a written statement detailing your preferences and wishes for medical treatment.
Life insurance
Another critical aspect of getting your affairs in order is making sure you have the right life insurance coverage in place. Specifically, a life insurance policy is designed to pay out a designated sum of money to your named beneficiaries in the event of your death. This payout can then be used by your loved ones to help pay for funeral expenses, college for your adult children, and even ongoing living expenses (such as mortgage payments).
There are 2 main types of life insurance:
- Permanent life insurance: Lasts for the entirety of a person's life with cash value that accumulates over time. Has higher premiums and is guaranteed to pay out. Whole life and universal life are types of permanent life insurance.
- Term life insurance: Lasts a predetermined length of time with no cash value. Has lower premiums and isn’t guaranteed to pay out.
As part of getting your affairs in order, take time to review any current life insurance policies and make sure you have the right types and amounts of coverage in place to protect your loved ones.