Do you have estate plans in place? If so, how old are they? Do the provisions you selected at the time still appear appropriate for your family?
My wife and I each did a quick on-line Will when our first daughter was 5 months old and we were getting ready for our first family trip to Mexico! Shortly after that we sat down with an estate-planning attorney and had a complete set of documents prepared and executed.
Estate plans are NOT just for the super wealthy! The standard documents – Will, Power of Attorney for Healthcare and Property, Revocable Trust, Living Will – are appropriate/necessary for the average Joe.
A Will provides for the disposition of assets in your individual name, names an executor of your estate and for a parent, names the guardian of your minor child(ren).
A Power of Attorney for Healthcare grants medical decision-making authority to another should not have the mental capacity to do so yourself. Likewise, a Power of Attorney for Property grants authority to another to manage/access your finances should you be incapacitated and unable to do so.
A Revocable Trust is a separate entity that can hold title to assets for your benefit and provide for continuing management and administration of those assets for the benefit of you and your loved ones should you become incapacitated.
A Living Will provides for your end-of-life care decisions.
This is my self-proclaimed “estate planning week” as I plan to have a few more blog posts this week on the topic. So, for starters, read the following article from Forbes.Com for some more insight. I highly recommend going to an estate planning attorney – a specialist/expert in this part of law. Afterall, would you go to your primary care physician for heart surgery???
How To Write Your First Estate Plan
Ashlea Ebeling, 01.26.11, 6:00 PM ET
Have you just gotten married? Had kids? Gotten an inheritance?
Many people put together a first estate plan because of one of these triggers. Others are inspired to sign their first, overdue will after a friend dies, or when they’re planning for a trip and start thinking, “God forbid the plane crashes.” (No matter that there were no airline fatalities in the last year, and there are 30,000 deaths on the nation’s roads a year. Fear is fear.)
What about saving estate tax? That used to be the big sell for estate planning, but no more. In December, Congress set the amount an individual can leave someone other than a spouse without worrying about estate tax at a generous $5 million per person ($10 million per couple) for this year and next. (Technically, it is set to drop back to $1 million per person Jan. 1, 2013). Plus, 22 states and the District of Columbia have their own estate and/or inheritance taxes.
Whatever motivates you, fine. The point is–whether you’re in estate tax territory or not, if you don’t have an estate plan, you need one. (And if you have a really old one, you probably need a whole new one. Get advice on rewriting your will in line with the new law, here.)
“It’s getting your affairs in order and protecting your family,” says Jeffrey Hart, an estate lawyer with Tarlow, Breed, Hart & Rodgers in Boston. “You’d be surprised at the number of wealthy people who wait until they are in their 50s or 60s before they do anything other than a simple will,” he says.
There’s a lot more to an estate plan than just a will, even for folks who don’t need a more complicated estate-tax oriented version. You might have pieces of it already–a living will signed when you had elective surgery or a beneficiary form filled out for a 401(k) when you got your first job. You need to make sure the pieces fit together. Kelly Phillips Erb, an estate lawyer with the Erb Law Firm in Philadelphia, had clients (a married couple) who had been together for years, yet the husband still had an old girlfriend listed as his primary beneficiary on his individual retirement account. After reviewing the form, he changed the beneficiary to his wife.
That’s right. It’s the beneficiary forms you fill out for retirement accounts and life insurance that control who gets those assets–not your will. Yet a will, with provisions for the care of minor children, is still the cornerstone of a plan. Under the simplest version, it’s just about who gets what if you die. In an “I love you” will, a spouse typically leaves everything to the surviving spouse. There is a standby trust for the benefit of the children if both parents die. And there are incapacity documents: a financial power of attorney where you name an agent to make financial and legal decisions on your behalf if you’re incapacitated; a health care power of attorney where you name an agent to make health care decisions for you; and a living will, where you state your end-of-life care wishes.
If you have kids, there are some tough and important issues you must resolve in your will. First, you must select a guardian to care for your children should both parents die. You must also name a trustee to manage any money that is set aside in a trust for the child’s care. (Remember that standby trust, should both parents die?) The same person (or a different one) should also be named as the successor custodian for any custodial bank accounts (UGMA and UTMA accounts they’re known as) you have in the kids’ names. (If you’ve got Section 529 college savings accounts for your kids, you may have filled out a form naming a successor owner for the trust, which can include the child himself. Just make sure the successor owner fits in with the plans you’ve made in the will.)
People wrestle with whom to name as executor of the will–the executor’s job is temporary, handling the estate after you die, but it wraps up. The guardian and trustee jobs last much longer and therefore deserve just as much, if not more thought on your part. Should the guardian and trustee be the same person? “Some people like to have separate people as a sort of check and balance on each other, although some people think, ‘If I’m going to trust you with raising my children, I’ll trust you with my money as well,'” says Hart.
It’s also worth putting some thought into the terms of the standby trust for your children. Do you want to direct the trustee to dole out half of the money in the trust when your kid turns say, 25, and the balance at age 30? Or do you want to set up a standard so the trustee has discretion to dole out money in the best interest of the child and for an unlimited period. That could mean making no distributions, if say, the kid got sued or is in the midst of a nasty divorce. Such asset protection language is becoming more popular among clients, says Hart. But it could also burden your offspring with the hassle of living with a trust for a long time.
Some attorneys still push trusts for estate tax savings. Couples in estate tax territory may want to put at least $1 million into a bypass or disclaimer trust at the first spouse’s death to preserve his or her estate tax exemption. The surviving spouse has access to the trust’s earnings and principal, but what’s left in the trust “bypasses” the survivor’s estate. As you get wealthier, the list of tax savings strategies worth considering grows: family limited partnerships, irrevocable life insurance trusts, lifetime gifting, qualified personal residence trusts, grantor-retained annuity trusts, private foundations and charitable trusts.
Business owners have their own special needs when it comes to estate planning. You have to consider what would happen to your business–would your heirs pay the bills and shut it down, hire a business broker to try to sell it or perhaps sell to key employees. If you have a partner, you should consider setting up a buy-sell agreement that says what happens to the business if one or the other owner dies or gets sick.
Once you put together all the documents, sign them (and get them notarized if required in your state). And make sure your executor has the latest copies and knows where you’ve stashed the originals for safekeeping. What if you’re afraid you’ll want to change your plan? No worries.
“People get really nervous that they are doing something permanent,” says Erb. “The nice thing about a will is you can rip it up tomorrow and redo it.”