December 2007

Article Tools

Where there's a will, there's a way: Talk about these 5 topics to plan your estate

Is there anything worse than not understanding what people are talking about, such as when a mechanic tells you that your car's intake manifold is leaking or your microwave's electronic relay switch is shot?

Fortunately, these are not life or death decisions, and you can get by with "Can you just fix that for me?"

With estate planning, the situation is far more serious. You must understand the significance of what you are dealing with in order to make good decisions for yourself and your loved ones.

Be prepared to discuss these five key topics in your estate-planning discussions:

1. Will and naming an executor. A will sets forth important decisions that you've made on a variety of issues, such as distribution of your property and guardianship for minor children following your death.

In addition to property and guardianship concerns, you can use your will for a variety of purposes, such as leaving messages to your children, other family members, or friends; donating your organs; or making requests about your funeral arrangements.

In developing your will, be specific and add a "residual clause" that directs the distribution of assets not mentioned by name in the will. This keeps the courts from divvying up these unmentioned assets.

Keep your will up-to-date, or it might not reflect your personal situation and needs at disability or death.

Dying without a will — intestate — throws the distribution of your property and the guardianship of your children into the courts. The state then decides everything for you. And, if there are no survivors who meet your state's inheritance distribution criteria, the state could actually take over your assets for its own benefit.

Your executor is a person named by you who will settle your estate after your death. Being an executor is a time-consuming job. Your executor must deal with the probate court, your heirs, and taxes, as well as many details and loose ends.

Your executor can be a family member, a friend, or a professional, such as a trusted lawyer or accountant, but consider naming a "contingent executor" in case your designated executor cannot act on your behalf.

If you have not named an executor, the court will name one for you, something many would want to avoid.

2. Guardian for minor children. A guardian is the person who will raise your minor children if you die. Without your specific guardianship designation, the courts will select a guardian on your children's behalf, but it may not be the person you would have chosen.

Before naming a guardian, make sure the person understands what being a guardian entails and get his or her approval. Experts suggest that you name one person as guardian, even if he or she is married, to avoid confusion if the couple becomes divorced.

You may separate physical guardianship from financial management of your estate for the benefit of your children.

3. Trusts. A trust is a legal device that puts conditions on the distribution of your assets, reduces estate taxes, and avoids the time, cost, and confusion associated with the probate process.

Basically, establishing a trust during your lifetime changes the title of your assets from you to the trust. You might be able to maintain control over the assets and have full use of them, even though the trust is considered the legal owner.

After you die, the trust can transfer assets to your designated heirs at a time and in a manner determined by you. The transfer will not be subject to estate taxes since the trust is the owner and not you, the deceased. Since ownership is determined by the trust, the property held in trust avoids going into the probate court.

Your estate planner can help you decide if you need to set up a trust and fill you in on the

Probate courts cost your estate money and can take a long-time to finish their work. The National Association of Financial and Estate Planning estimates that average probate costs run from 6 percent to 10 percent of the value of an estate and can take years to complete. That's a hefty price to pay.

If you have a $3,000,000 estate, probate costs could run from $180,000 to $300,000. Avoiding the time, hassle, and expense of probate — or minimizing your estate's involvement with it — is highly desirable.

Your estate planner can discuss how probate works in the courts in your state.

Non-probate property includes property you own with others or assets that pass automatically to another designated person, such as life insurance proceeds.

Assets that you own alone and are not part of a trust are considered probate property. The probate court determines the new ownership of your probate property based on state law and transfers the legal title to the new owner. If you have a will, the probate court won't have to determine ownership; however, unless you have a trust in place, the court will have to do the titling.

4. Life and long-term care insurance. Life insurance can replace lost income due to your untimely death as well as help pay for short-term and long-term obligations.

Whether life insurance should be included in your estate plan and, if so, how much you need, depends on your age; the ages, needs, and health of your dependents; your financial obligations; and whether or not you are the primary bread winner in your family.

Life insurance is sold as either term or permanent insurance. Term is the type of insurance you get in a group plan, although you can purchase it on your own. It has no redemption value and costs more as you get older.

Permanent life insurance is more complex and more costly. It provides not only a death benefit but also accumulates a cash value over time, which enables benefits to be paid out even before your death. Your estate planner should assess your insurance needs as part of your total estate.

Long-term care insurance can help take care of your needs for nursing care or assisted living. Discuss the pros and cons of each type of insurance with your estate planner.

5. A living will, healthcare proxy, and power of attorney. A living will provides instructions about medical treatment if you are unable to speak for yourself.

A living will usually comes into play if you are on life support due to terminal illness or irreversible injury. Living wills are impacted by state law, which may define when the living will goes into effect or limit the medical care to which the living will applies.

A healthcare proxy gives your designated agent a medical power of attorney to make healthcare decisions on your behalf. Your agent should be someone who can handle the stress of life-or-death decisions and will always act in your best interest. Your agent will have to prove your incapacity before the medical power of attorney goes into effect.

A durable power of attorney names a designated agent to manage your financial affairs when you cannot do so. He or she has the fiduciary responsibility to act in your best financial interest.

If you have not named an agent to manage your affairs, the court will do so for you. Professionals, institutions, and court-appointed agents will require compensation for these services. Your estate planner can help you determine how these fees will be paid.

SIDEBAR:
To select a guardian

Edward R. Collins, AAMS, RFC, is a family wealth-management specialist at Collins Wealth Management, LLC. He can be contacted at 973-292-8728 or 770-933-6285, or through www.collinswealthmanagement.com.

Comments

Be the first to comment on this Article

Post Your Comment

Name

Location

Comment

To submit your comment, please type the security word shown in the picture.

.

Remember information