Planning For The Future: Wills, Estates...And All You Need To Know About Both

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By Mia Bolaris-Forget

Most of us devote a lot of time, energy and money into "day-dreaming" about, planning and building our future...but few of us plan for or even want to think about what will happen to our stuff/estate if something should happen to us.

Perhaps it's the topic that turns us off or maybe we don't think we have enough (stuff) to be concerned with or about. But according to experts anyone who own anything (including a car, home, bank account, mutual fund(s), etc), can be considered as owning an estate. And, they add that having a will or other type of estate plan can include plans to cut back of costs of settling and estate and maybe even saving on taxes. That means more property, etc goes to those you want to leave it to. For example....if you want to leave money or make some donation to a charitable organization, it MUST be stated in your legal document or will since the law only allows for distribution of money and assets to the next of kin.

Experts suggest frequently reviewing such documents, especially as your family grows, as relationships and financial and economic circumstances chance. In fact, they note that your estate or will may need to be changed or updated as tax laws change. Also, beneficiary designation on retirement savings plans and life insurance policies also need to be looked over from time to time just to make sure they are up to date and do not conflict with provisions in a will or other legal document. Mistakes in beneficiary designations can result in the disinheritance of heirs, delays in providing for the monetary needs of family and loves ones, and some unnecessary expenses and tax payments.

According to the law, estate taxes are placed on transfers of assets from one individual to another after the donor's passing. Federal estate taxes have been in the news frequently over the last several years due to the fact that they are scheduled to rise from $1.5 million to 3.5 million (in 2009); and because the federal estate tax is due to be repealed in 2010 and brought back to a $1 million dollar exemption in 2011 unless the 2001 tax law is extended. With that said, these increased exemption means that nearly all those who pass will be able to escape federal estate tax completely.

State taxes on the other hand are a whole other story. Many states have separated from the federal estate tax system and offer exemption on non-spousal transfers as low as 675.00. Experts suggest that those families/household seed legal advice from an estate planning attorney in an effort to find out about some of the common ways that can be implemented to reduce taxable estates, including lifetime gifts, transferring assets between spouses and bypassing trusts that maximize the benefit of two estate tax exemptions for a married couple.

Experts advice and encourage writing a will as soon as possible. They note that because the topic is such a difficult one, only about 42 percent of adults actually have a will, with many believing they have "plenty of time" to worry about it. However, making important decisions such as who will act as guardian for your children is better addresses before something happens. And, when it comes to drawing up a will, here are some important things to keep in mind.

- People who die intestate (without a will) default to the “one size fits all” will provided by their state of residence. This state property distribution formula may or may not be appropriate for their family’s situation, but there is no choice in the matter. Estate settlement costs are also increased because a court-appointed administrator must be appointed, and generally bonded, which increases an estate’s administrative expenses.

- Contrary to what some people think, family members do not have to be named to key positions in a will. It is not unusual for people to name a professional fiduciary, such as a bank trust department, to serve as executor or to name a close friend as guardian for their children.

- The cost of a will should also not be an issue. If someone is prepared with a list of their personal representatives, bequests, and beneficiaries, a will can cost as little as $50 to $100.

- Avoid conflicts in titling of assets. This error is seen especially in remarried households. People want assets to go to one person (for example, a child from their first marriage) and put this in their will, yet they own the asset with rights of survivorship with someone else (such as a second spouse).

- In cases where provisions in a deceased person’s will conflict with the titling of assets, the title almost always determines the asset’s subsequent owner. Persons with complex estates and/or family relationships are advised to seek legal counsel to avoid making titling errors.

- Speak with individuals chosen as executor and guardian to make sure they agree to serve and are fully aware of their responsibilities.

- Select a contingent executor and guardian in case your first choice is unable to serve.

- Update your will every time there is a major change in your life (such as the birth of a child, adoption, and divorce) or changes in the lives of those mentioned in your will.

- Another time to review a will is if you move to another state. Laws that govern the probate process and asset transfers differ from state to state.

- A minor change to a will can be accomplished through language known as a codicil. Otherwise, a new will is drafted that revokes and replaces all prior ones.

In addition, they offer the following rules and guidelines for those planning gifts and inheritances.

- An individual may give up to the annual gift tax exclusion amount (currently $11,000 and indexed for inflation) to as many people as desired each year without any gift tax consequences.

- Lifetime gifts may be used to decrease the donor’s taxable estate.

- Unlimited amounts can be given to a spouse (except non-citizens) or to a school or medical facility for a person’s tuition or health care. Payment for qualified medical and educational expenses must be made directly to the service provider.

- Gifts and inheritances are not taxable to the recipient but, of course, the interest earned on this money is.

- Seek professional assistance for high net worth estates or complicated asset transfers.

- Donors must be careful not to leave themselves short of income.

- Plan for the disposition of untitled personal property. This is all the items people own for which the owner is not identified in a written document. Examples include tools, furniture, books, dishes, collections, jewelry, clothing, and more.

- Talking about untitled property can be sensitive because of the emotions involved, sentimental meanings attached to various possessions, and differing perceptions of what’s fair in the distribution process. Also, unlike a bank account or stock, there is often only one of an untitled property item, so it is impossible to divide everything equally.

- Untitled personal property can be distributed in several ways, including memorandums attached to a will, lists given to a person’s executor or family members, gifts made during a donor’s lifetime, drawing names out of a hat, verbal promises, and labeling items.

- For additional information on transferring untitled personal property, see the University of Minnesota’s Who Gets Grandma’s Yellow Pie Plate?.

- Communicate openly with heirs about intentions to leave an inheritance. It is often easier for parents to bring up the subject than for adult children to risk appearing “greedy.”

- Beneficiaries should never use a potential inheritance as an excuse not to save. There are simply too many unknowns such as the donor’s health, long-term care needs, and life expectancy.

- Recent research by AARP found that, for most baby boomers, inheritances will be a small part of their retirement nest egg. The median (midway point) value of inheritances received through 2001 was just under $48,000.

Last, but not least, some points of consideration for those seeking out a durable power of attorney to help them with the legalities of their paperwork.

- Consider drafting a durable power of attorney. Without one, it may be necessary for your family to seek court appointment as a guardian or conservator if you become incapacitated. This appointment process is slow, invasive, and expensive and can be avoided with a durable power of attorney that names an “agent” to handle financial matters in the event of the principal’s incapacity.

- If properly drafted, a durable power of attorney should eliminate the need for court proceedings to declare someone incapacitated and to appoint a surrogate to act on their behalf.

- Select your agent carefully. There is always a potential for abuse when someone is given responsibility for someone else’s money; the person selected as an agent must be someone of honesty and integrity.

- Consider selecting an equally trustworthy alternate agent in case the first choice is unable to serve.

- Anyone considering granting a power of attorney should be as specific as possible about what powers are being granted (such as paying bills, cashing checks, buying and selling securities) and for how long.

- Legal assistance is highly recommended. The importance of specific language and the danger of abuse make it very important that an attorney be consulted in preparing and executing a durable power of attorney.