CHAPTER
25

Estate Planning Throughout Your Life

In This Chapter

• Looking ahead if you’re single
• Single parent strategies
• Planning with minor children
• Retired, and still planning

Now, with 24 chapters of information and advice under your belt, you should have a good idea of what you’ve got in the way of assets, how they are likely to grow, and how you want your estate plan to proceed.

To sum up and review everything in this final chapter, I’m going to cover topics according to marital and child status. This should help you find yourself quickly and see what you need to do to ensure an estate that’s in fine order now and likely to remain so in the future, thanks to your continued diligence.

Take a look at the following worksheet to see what still needs to be done to complete your estate plan, which will, of course, differ from those of Harry down the street and your co-worker Linda.

Now let’s get on with some tips for what you might be doing planning-wise at various stages of your life, based on how things are with you right now.

Single with No Children

Many assume the life of a single person is free of responsibilities. If you are single, you know that is frequently not the case. You may have an elderly parent to care for or other family responsibilities. You might put in long hours at work. Perhaps you are the driving force behind a successful, but demanding, local volunteer effort.

QUOTE, UNQUOTE

As wise women and men in every culture tell us: The art of living is not controlling what happens to us, but using what happens to us.

—Gloria Steinem, Revolution from Within (1992)

Your estate planning needs are clearly different in many respects from those folks who have children.

At a minimum, you should have a will. The state intestate laws provide that your heirs will be your siblings and your parents, if any of them survive you. If you have no immediate family, your nieces, nephews, and cousins may inherit. Probably not all of them are deserving of your estate, so a will allows you to specify your inheritors.

If you are entering retirement years, I would also suggest a revocable living trust and a durable power of attorney. You may need someone to manage your affairs when you no longer can and have no children to rely on. Also, put as much money into your retirement plans as possible because living on just Social Security may mean some significant changes in your lifestyle at retirement.

Single with Children

Single parents have to do double duty during the child-rearing years—not an easy task in the best of times. Often they must be father and mother and … no, make that triple duty. There’s also work, and perhaps more than one job at that.

Hectic days and nights might not give you time to think much about estate planning—after all, you’ve got more pressing demands, right? Wrong.

You may be the only source of support for those growing children, and your untimely death would leave a significant emotional and financial void. You can ensure that at least the financial void will be minimized with good planning. Here are my suggestions.

Get as much term life insurance coverage as possible. This is an inexpensive means of leaving a substantial estate for your children.

TIP

After a divorce, be sure your life insurance policies and retirement plans are changed. More than one person has benefited from his or her ex’s procrastination.

Put as much as you can into your 401(k) plan at work, so you won’t have to depend only on Social Security when you retire.

Make a will, and provide for a trust and a guardianship for minor children. If you are divorced, your ex-spouse may be entitled to custody of the children if you die; if you do not think that would be appropriate, contact an attorney to determine what you can do to avoid it.

Execute a durable power of attorney and make your agent someone you trust implicitly. You want to make it effective only if and when you become incapacitated.

Finally, if you are divorced and your ex-spouse is behind in child support, see an attorney about enforcing your children’s rights in that regard.

If you are a single parent and the other parent is not in the picture at all, of course there is no possibility of child support. You must pay particular attention to your estate plan, especially guardianship for your child.

If you are a single parent with a significant other, you should have a will and consider whether it is appropriate to provide for the other person in the will, as well as name that other person guardian for your children, particularly if both of you have assumed parenting responsibilities.

Married with No Children

Wills for each spouse are important here. If children are likely in the future, there should be a clause in each spouse’s will making any afterborn or adopted children the secondary beneficiaries of that will. The will also should have a third beneficiary to receive the probate estate if both spouses die simultaneously and there are no children. Although the law doesn’t require the same provisions in both husband and wife wills, each spouse should at least discuss with the other any differences, particularly differences regarding any future children’s inheritances.

TIP

With no children, your life insurance needs will be modest if your spouse is working and can support him- or herself. However, if children are planned, purchase a policy that will allow higher coverage when the kids begin arriving.

Mature spouses need to establish a revocable trust to manage their affairs when they don’t want to or cannot do so. They also need the “powers” that can help: durable power of attorney, health-care power of attorney, and a living will.

Deciding who benefits after both spouses’ deaths may be difficult. If this applies to you, then no doubt you are close to some relatives and particular friends. You might want them to inherit. Or you might prefer that part of your estate go to charity. A charitable remainder trust (from which you receive income during your lives and then the charity is entitled to the balance after your death) could be a viable choice for part of your estate (see Chapter 18).

Married with Children

Children are with us at all ages, which makes your estate planning needs vary from one age, or stage, to another. The family with youngsters has different concerns than the family with adult children. Let’s look at the needs for both.

First, here’s what both husband and wife with kids of any age will need:

• Wills
• Durable powers of attorney
• Substantial life insurance coverage
• Individual retirement plans

Both young and mature couples should discuss executing the following:

• Living wills
• Health-care powers of attorney

Obviously families are not all alike, but these documents are essential to any estate planning.

QUOTE, UNQUOTE

Children are a great comfort in your old age, and they help you reach it faster, too.

—Lionel Kauffman

When There Are Minors

Let’s look in more detail at the family with minor children—those under 18. If that’s you, I suggest a testamentary or revocable living trust for those children.

If you have minor children who are going to inherit at least $100,000, you especially should have a trust that manages their property beyond age 18 to a more mature age when they are less likely to waste that inheritance.

In addition, young parents must consider the selection of a guardian to rear those children and to manage their funds if there is no trust.

When the Children Are Adults

How about mature parents of adult children? You may want to help your kids save for your grandchildren’s college fund by establishing a custodial account and making periodic gifts to it in amounts that would be exempt from the gift tax ($14,000 per donee each year, $28,000 if both parents join in the gift; see Chapter 17).

Most parents, in their desire to be fair to their children, simply divide their estate equally. That is your call. But “fair” and “equal” are not necessarily the same. For example, the child with a serious disability that will limit his or her earning potential is likely to require more from you. If you do distribute your assets unequally, be sure to explain your reasoning in your will, or in a personal note to those involved. Also consider, as an alternative, buying term life insurance on your life to provide for the more needy child.

If you’ve remarried, you may have children from a prior marriage. Often prenuptial agreements specify that each spouse’s will distributes his or her probate estate to his or her children from a prior marriage. You don’t want one family to resent the other for taking what they consider to be their share of their parent’s estate.

WATCH OUT

Even a prenuptial agreement will not be effective if you and your spouse have all your assets in joint ownership. The surviving spouse will take the property no matter what the prenup says.

If you are approaching retirement, you ought to sit down with your financial adviser to determine just how much money you are going to have for those years. Exactly how much. Obviously, the big unknown could be the cost of health care. Because Medicare isn’t sufficient, you might want to consider a Medigap policy, and/or long-term-care insurance.

Besides a will, you should certainly have a durable power of attorney, a revocable living trust, a living will, and a health-care power of attorney. You truly do need these papers.

In addition, I would suggest the following.

Sign a certificate of competency. Consider the fact that we all, naturally, like to think we can recognize our own weaknesses. In that respect, if you think there could be any question as to your mental capacity to execute a will or other legal document, avoid a later contest by obtaining a physician’s certificate showing you are indeed competent.

Examine your life insurance policy to determine if you can draw on the death benefits during your life—to pay medical expenses, for example.

If you have more than one residence, resolve any conflicts about which is your legal residence (domicile).

WATCH OUT

Remember, when selling your home and looking toward that tax exclusion for the first $250,000 ($500,000 if married) of profit, you are only allowed that if you have owned/occupied it for 2 of the last 5 years.

Examine your estate’s liquidity to pay taxes and debts.

Review the contents of your safe-deposit box, and remove anything you may want to give away. You might make those gifts now instead of promising the recipients the items will be left in your will.

Examine your entire setup if you own or co-own a business. You may need to let go of control, but not at a significant sacrifice to your financial well-being.

Consider whether making gifts to the family now makes financial and tax sense. Death tax reduction might be at the sacrifice of income tax savings to your heirs.

Arrange your finances to minimize the death tax impact on both your estate and that of your spouse.

Make a mental note to review your estate planning at least annually. Your financial picture may change, and certainly tax and other laws change often.

Final Thoughts

You may recall back in that first introductory chapter, I asked you to fill out an “Estate Planning Worksheet,” which included a number of questions you should be answering while reading this book, from how you can reduce income taxes now to gauging your expected retirement income. I suggested you might bookmark that page and refer to it again later. This would be a good time to take a look at it. The questions probably sound quite familiar now that you’ve read about all those topics. You even might have moved past some of them by now.

QUOTE, UNQUOTE

We do not live an equal life, but one of contrasts and patchwork; now a little joy, then a sorrow, now a sin, then a generous or brave action.

—Ralph Waldo Emerson, “Journals” (1845)

If you haven’t yet completed your estate plan, you’re certainly quite prepared to do it now. And when you do, you’ll have documents that will serve you well for the years ahead. Think of the peace of mind you’ll have, just knowing you’ve put things in order and have done what you can to look after your family and others close to you through a will or trust.

Don’t forget to refer to your plan often through the years, always fine-tuning the decisions you have made and projects you have undertaken. And stay in touch with your estate planning team as new family and lifestyle situations and financial possibilities crop up. These professionals can really help.

Much luck and good fortune to you in the years ahead. May all the new elements that arise in your life having to do with your estate plan be beneficial, perhaps even profitable, bringing you satisfaction and contentment.

The Least You Need to Know

• Everyone needs a will; some people need a trust; both documents should be reviewed frequently.
• A single person should have a durable power of attorney, which becomes effective only if he or she becomes incapacitated.
• A trust might be the answer for minor children.
• If you are nearing retirement, execute a revocable living trust to manage your assets when you cannot.