How to Protect Your Family if You Are Recently Unemployed
If you have recently lost your job, you are not alone! Inflation has skyrocketed in the United States over the past couple of years. Some smaller businesses have not been able to survive the increased expenses, putting employees out of work, while many larger companies have laid off employees to reduce their costs. If you are dealing with a job loss, you can transform what you may view as a crisis into an opportunity to take steps to protect yourself and your family.
1. Take a Hard Look at Your Financial Situation
Try not to dwell on the loss; rather, focus on planning for the future. In planning proactively to address both the immediate crisis and your long-term financial wellbeing, it is important to assess the state of your finances. Do everything you can to maximize your resources and minimize your expenses.
Keep in mind that some resources may be available if you were laid off through no fault of your own. Some employers may provide a severance package, and in many cases, unemployment benefits are available for a limited period to tide you over until you find a new job.
If you have an emergency fund, you can rely on those funds first. Keep in mind that withdrawals from checking and savings accounts have no tax consequences. That is not the case for every type of account: if you liquidate a portion of an investment account that has appreciated over time, you may have to pay taxes on any capital gains. Drawing cash out of a retirement account may result in even more tax liability, as the amount withdrawn may be taxed as ordinary income, which could mean a rate much higher than the capital gains rate.
You should create a list of your debts and expenses. This will provide you with a fuller picture of your financial situation. If you have expenses that can be temporarily eliminated—subscriptions for streaming services, cable television, yard or house cleaning services, and other luxuries—it is smart to do so sooner rather than later.
You may also be able to work with creditors if you think you will miss a payment or need to make a reduced payment temporarily. They will prefer getting a partial payment rather than no payment, and most will be open to working with you as you look for a new job. However, this may have a negative impact on your credit rating, and you may have to make an effort in the future to increase your score.
2. Update Your Estate Plan
Although you may think about updating your estate plan when your life circumstances change in a positive way—for example, getting a higher-paying job or having a child—you should also update your estate plan when you experience negative changes, such as losing a job. If your life insurance policy was provided by your employer, it will generally terminate when you leave your job. If, for example, you named your trust as the beneficiary of your life insurance policy and were relying on those funds to provide for your loved ones, you may need to review your estate plan and make changes to how much everyone will receive.
3. Create an Estate Plan
An estate plan can protect your accounts and property by minimizing expenses and taxes—leaving more for your family—while also making sure your wishes are followed. Without an estate plan, state law determines who will inherit your property and accounts. A will or trust enables you to choose your beneficiaries and what you want each one to inherit from you. Certain types of trusts can protect your assets from creditors if the trust is established before any creditors’ claims arise.
Most importantly, an estate plan provides you and your family with the peace of mind of knowing that if anything happens to you, they will not have to deal with the possibility of family conflicts and difficult decisions during an already stressful time. An estate planning attorney can help you create a basic plan that you can afford now; and, if you choose, you can add to your plan once you have found a job. We are here to help, so please give us a call to schedule a consultation.