Guide to Estate Planning for the Self-Employed
As an opera singer and freelance writer, I know self-employed. Everything from health insurance to paying taxes is a little more complicated for those of us who choose to work for ourselves. One trend I've noticed among many of my self-employed friends is that they haven't given much thought to retirement savings, life insurance or estate planning. Unfortunately, without employer-sponsored plans in place to help us, we need to be even more diligent in making sure our affairs are in order.
Luckily life insurance isn't too hard to get when you're young, but it can become more difficult as you age. Most people have at least minimal coverage through their employer, but self-employed people don't have that luxury. If you're self-employed and have dependents (or plan to have dependents sometime in the future), go get yourself a term-life policy while you're young. The premiums won't be expensive and your loved ones will be taken care of in the event of your untimely demise.
If you don't save some money throughout your working life, you won't have an estate to plan. This is one of the biggest problems self-employed people face, after finding health insurance. Traditionally employed people generally have access to a company-sponsored 401k, which allows them to set thousands of tax-deferred dollars aside every year. However, what many self-employed people don't know is that we too can have 401k plans - we just have to set them up ourselves. Self-employed or Solo 401ks are gaining popularity and they are an excellent retirement planning tool for freelancers. We can also take advantage of Roth or Traditional IRAs, but Solo 401ks allow us to save much more.
If you're a freelancer like I am, estate planning is no different for you than it is for someone with traditional employment. Estate planning needs for everyone include a will, insurance beneficiaries, a healthcare proxy or living will, and perhaps a trust depending on the size of the estate. However, estate planning is a much more complicated matter for small business owners. A small business owner may want to sell their business before their death, pass it along to their children or heirs, or own the business jointly with someone who will likely survive them. A valuation of the business may be required. It is advisable for small business owners to consult with their lawyers, accountants and other business and estate planning specialists to determine what the best course of action will be in their case.
While it can be rewarding, self-employment presents special challenges when it comes to taking care of family and building an estate. However, estate planning for self-employed people shouldn't have to be difficult. Estate planning for the self-employed may be a little complex, but with the proper tools, forethought and guidance, it can be done in a way that benefits both the family and the family business.