CHAPTER
1

Introduction to Estate Planning

In This Chapter

• “Later,” “Someday,” “When I hit 40,” and so on
• Understanding what comprises an estate
• The perils of having no plan
• Setting goals
• Creating your estate planning team

As you probably know, the much-loved comedian finally “exited” in 1996 at the age of 100. Burns played God in two hit films, but even that, of course, did not prevent him from eventually having to go on to meet his Maker and having to leave behind all his earthly belongings for his heirs. Did George Burns have a proper estate plan? I was not one of his attorneys, but I’d bet he left his estate in A-1 condition, spelling out his wishes clearly and taking advantage of every legitimate tax break.

Sure, George Burns had a larger estate—a lot larger—than you or I are likely to leave, and he should have worked hard on its intricacies. However, whether you’re young or old; employed or unemployed; wealthy or living paycheck to paycheck; single, married, or in a long-term relationship with a significant other, you need to plan for when you’re not here—or because of illness, unable to speak for yourself. Why on earth would anyone want someone else, let alone the state, to make important and very personal decisions for them and their family members left behind? If you don’t have a will, state law determines who will inherit your estate. If you have specific wishes for who will get your money and other belongings, you better have an estate plan.

What Is an Estate?

The area of estate planning is likely to seem hazy if you haven’t given the subject much thought. You certainly need to understand the terminology used in this book though, so let’s start with a few explanations.

Your Assets

The dictionary defines estate as the assets and liabilities left by a person at death. Although that’s true, I’d expand that definition a little. If you are able to leave an estate at death, you carried its ingredients through much of your life, too.

Those ingredients are assets—everything you own by yourself or jointly with someone else. If you’re 18 years old, you probably don’t own very much. But as you grow older, you begin to acquire possessions—a home, a car, a pension plan, perhaps some stocks, and the like. All of that is valuable; first, because it all becomes your assets (which are good for anyone to have) and second, because you can transfer those assets to anyone you choose.

As you get older, your responsibilities increase, along with your assets. You’ll want to see that your spouse and children, especially young children, are taken care of if you die. You’ll want your debts to be paid, too. You might have elderly parents or an ailing sibling you’re looking out for. Your wishes for after your death can be carried out with a proper estate plan.

Your Estate Plan

An estate plan is an arrangement for the conservation and transfer of your wealth after your death. It ensures that you keep the most money and other property at the least cost to you during your lifetime and to your heirs when they inherit.

The minimum any estate plan should contain is a will. I’ll touch on the contents of that document soon.

A good estate plan might also include a trust. A trust is a written agreement that allows you to hold property and manage it for your beneficiaries in accordance with whatever instructions are in that trust agreement. It’s a little like a will but without the necessity of probate. I get to a fuller explanation of a trust in Chapter 9.

Other documents you might want to add to an estate plan are a durable power of attorney, which legally gives someone you designate the right to make decisions for you should you become incapacitated and cannot act on your own. You might want a health care power of attorney, which gives the person of your choice the right to make decisions for you about your health care if you cannot make them yourself.

There are some other documents you may elect for your estate plan that I mention later in the book, but the most important component of an estate plan, the cornerstone, is the will.

Your Will

A will is a legal document setting forth your wishes for the disposition of your estate after your death. Yes, it’s that “I, William Jefferson, of Anytown, USA, being of sound and disposing mind and memory …” document you’ve heard and read about over the years. It can be as long or as short as you like. You can briefly leave every last thing you own to your spouse or someone else, and that’s that. Or—and more than one elderly person has done this—you can bequeath every individual piece of property you own, including each jewelry item, sports memorabilia, and various collections, to different persons. And you can revise your will periodically, as relatives and friends rise and fall in your favor.

As you’ll see, you may leave anything and everything that’s yours in your will, including your pets and requests for their future care.

A will might also include guardianship wishes for minor children. Keep in mind that what you’re doing with guardianship wishes is essentially nominating the person or persons you choose. Ultimately, the appropriate court will make the guardianship decision. (See Chapter 23 for more on guardianship.)

What makes your will legal? Signing it in the presence of witnesses (two or three depending on what state you live in) who are not beneficiaries in the will makes it valid. But what makes it effective is its being filed in the appropriate state court after your death and being recognized by the court as your valid will, revoking all previous wills. I talk a lot more about wills later.

Now that you know the basic terminology I use throughout the book, let’s move further into these topics.

Why Many Don’t Plan

Here’s a statement that may ring true with you: “I think I’ll see my lawyer next week, or certainly sometime this month, about drawing up a will. I’ll definitely do it before the end of the summer (fall, winter, spring).”

Many of us who don’t put off tasks in other important areas of our lives seem to drag our feet when it comes to estate planning. Why is that?

Kim, a 26-year-old marketing executive says, “What do I have to make a will for? I share a rental apartment, I don’t have a car, and I have $2,000 in the bank. Where’s my estate?”

Ah, but who would she like to inherit that $2,000? Instead of having the money turned over to her parents, which would probably happen if she dies intestate (or without a will, versus testate, which is having a valid will), she might prefer that it go to her younger brother. Kim also could have funds invested in a retirement fund. Has she already designated a beneficiary for them?

And what about that brooch Kim got from her great aunt Mary? The one she clips onto her lucky suit when she’s preparing to make a major presentation at the office? If you ask her right now, she would say she’d like her goddaughter, her best friend’s child, to have that favorite piece of jewelry.

But no one is going to know, or carry out, Kim’s wishes if those wishes are not set down in black and white in a will.

Then there’s Frank, a 50-year-old telecommunications employee who shrugs off making a will, saying he wants his wife, Amy, to inherit everything of his and theirs. He says that’s what will happen, even without such a document. It makes Frank uneasy to talk about a will, let alone take the first steps to having one drawn up for him. Why? Amy says she thinks it’s because Frank’s father died at the age of 47. Any mention of death or age or wills spooks Frank because he’s already passed that age.

Frank might not know that if he dies intestate, the probate fees usually will be higher than if he had a valid will. Does Frank want Amy to pay that extra money? It’s not likely. In addition to the fee, his property may go to their children or to Frank’s parents, not just to Amy.

With some advance planning, Frank could see to it that his estate is as large as it can be, with the least amount of taxes paid (through some clever investment and tax strategies), and goes to those he wants it to go to.

Finally, there’s Helen. She is 61 years old, manages a boutique, and, aside from a few minor ailments, is in good health. Helen and her friends talk a good deal about a living will and a health-care power of attorney. Helen has been quite vocal about not wanting to be kept alive “by extraordinary means” if she should fall seriously ill—a directive that’s a major component of a living will.

But she hasn’t taken care of that aspect of estate planning. She keeps putting off the paperwork. If some day it does come to those extraordinary measures, Helen might not be able to communicate her wishes about medical treatment.

Kim, Frank, and Helen are drifting along with a head-in-the-sand approach to estate planning. They know what they should be doing, and they read articles about wills and other components of a long-range plan, but all of them, for their own reasons, refuse to take action.

The Importance of Looking Ahead

If you see yourself in any of the preceding scenarios, you’re not alone. As many as 50 to 70 percent of the population die without having made a will. That doesn’t even include the number of people who don’t have other important estate documents. For some, death is the only tragedy; for others, the failure to plan an estate has catastrophic consequences for loved ones.

The state has made a will for you if you do not have one, and the heirs it decides upon might not be the ones you would have chosen.

Each one of our preceding trio has a rather simple estate, at least monetarily, but many other people have more complicated situations. Some might have quite sizable sums of money involved. Or there could be second marriages, home to children from that union as well as from a previous marriage to be considered. Or there might be guardianship issues for minor children to be decided. Or perhaps a business is part of an estate, and one with a partner or two at that.

Lack of planning by the deceased can keep the disposition of an estate on hold, sometimes for years. Then it might still not be disbursed the way the individual would have liked.

And let’s not forget how poor planning—or no planning at all—can result in heirs being hit with higher federal and state taxes and court costs for processing the will, which they otherwise wouldn’t need to pay.

Newspaper and magazine advice columns are full of letters from frustrated readers whose parents didn’t make a will or take the time to plan properly. As a result, the heirs were left with a financial mess—not to mention the stress of coping with sometimes-incomprehensible paperwork and demands at a time of mourning and change in their lives.

Putting It All Together

How and when you leave this vale is, of course, beyond the control of either of us. However, seeing the pieces of your estate plan fall into place, knowing how well organized you are now, and realizing that your wishes will be carried out later can bring you peace of mind, not to mention a sense of accomplishment.

As I said earlier in this chapter, planning ahead also means preparing for tomorrow, not just 10, 20, 30, or more years down the road. Judicious care of your current savings and plans for anticipated income can help your estate grow and bring you the comfort of knowing your money is working for you, working to make you even more comfortable in retirement. I’m talking about a life plan here, with the opportunity to make wise choices and take advantage of perhaps unique opportunities from now on. Your aim also should be to build your assets and pay down your debts now so you can retire to a pleasant, worry-free life later.

So many other subjects have to do with financial and lifestyle situations that could affect you in the years from now until your death, including inheritances, salary increases and/or special bonuses, marriage or remarriage, new jobs or perhaps your own business, real estate purchases, your pension, and Social Security. So you see, an estate plan doesn’t just focus on wills and other mechanisms that swing into effect when you are no longer here.

What Should Your Goals Be?

Everyone will have his or her own priorities, of course, based on age range and individual family and financial responsibilities and interests. You learn more about the various topics that fall under estate planning and what you should strive for as you read on.

However, generally speaking, after reading this book and implementing its suggestions, you will have achieved these specific goals:

• You will have a will (or a trust, or both).
• You will have important auxiliary documents, such as a power of attorney.
• You will know how to start saving money now.
• You will be able to protect the assets you now have.
• You can reduce your taxes.
• You will be able to plan for retirement, securing the lifestyle you want in those years ahead.

You don’t have to do everything covered in this book. No doubt some suggestions won’t even apply to you, at least not at this point in your life. You may not be divorced, for example, or even married, so advice in those areas won’t be relevant. You may not have your own business. Your parents might be in their early 50s, quite hale and hearty, with no need for you to concern yourself as a caregiver quite yet.

Still, whether you are 25 or 65, the information you need today to set up a solid estate plan can be found within these pages.

Starting Now

“What are your investments?” the broker asked.

“My sons—Ted, Josh, Ethan, and Zach,” I answered.

That wasn’t the reply the broker was looking for, of course, but he knew what I meant. You do, too. While the boys were growing up, I had to tend to what’s usually meant by the word investments—my home, my savings, a plan for retirement, and the like.

Are you as prepared as you think you are? Maybe yes, maybe no. To help you assess your particular situation right now, I’ve created a planning quiz. After you’ve answered the questions, mark or fold over the corner of the page so you can come back and refer to it again. By the time you finish reading this book, you’ll know what you need to do to be able to answer yes to every question on the list.

See the “Estate Planning Information Sheet—Basic” and “Estate Planning Worksheet” on the book’s website.

Putting Together Your Estate Planning Team

Who can help define your needs and then set you on the path toward setting up a valuable plan?

First, of course, I can. There also are other professionals you may want to consult, either on a one-time or fairly steady basis.

Your team will be made up of men and women with expertise in different aspects of estate planning, and their knowledge and guidance can be invaluable. However, do not forget for one moment that you are in charge. No one on your team should tell you what to do. Each individual can offer options and discuss consequences, but only you can determine what your best estate plan is. So you’ll have to do some homework to be as competent as possible when taking charge.

You may not need every member of this team, or at least not all of them at the same time in your life. The more complex your estate, however, the more likely you will need to call on a range of professional services.

Here are some of the people you should consider for your estate planning team:

Life insurance underwriter Most of us are underinsured. Life insurance should be an integral part of most estate plans. Young families need term insurance to provide support for the family if a parent dies. You may need life insurance to make an estate more liquid—allowing your heirs to pay the taxes and debts without being forced to sell assets.

The life insurance underwriter can determine your needs and the amount and type of insurance that best meets those needs.

Trust officer You may need a retirement trust to help manage your assets. Your children could require a trust to avoid wasting their inherited assets because of their immaturity.

The trust officer at your bank or other financial institution can discuss his or her services and fees. It is time well spent.

Accountant No one is likely to be more familiar with your financial situation than your accountant. Few details in life are more intimate than one’s tax returns. If you have a business, this is the individual who knows the balance sheet. Use your accountant to help gather the information necessary to focus on your financial picture so you can prepare a good estate plan.

Financial planner Your money can always be more productive. The financial planner’s role is to advise you about appropriate investments that will meet your estate planning goals.

Attorney The attorney drafts your will and prepares a trust, which you also may require. In addition, he or she prepares all estate documents. You can try filling out your own documents from a book or computer program, but you do so at your own risk.

Most of us pick physicians and dentists—and estate planning professionals—rather haphazardly. Consulting an online directory or asking your brother-in-law or next-door neighbor, both of whom seem to know everything, is not the best way to proceed here.

A much better strategy is to talk with a number of friends and relatives whose opinions you value. Find out whom they have worked with and whether they would engage the same professionals again. Interview prospective team members. Discuss fees. Do they seem more interested in your money than in your estate planning goals? Do they appear to be in a hurry, too busy to talk with you, or do they take the time to answer your questions thoughtfully and completely?

Check with the licensing or professional association for those you are considering. This might be a state office regulating that professional or the group’s statewide association, comprising members throughout the state. Ask whether any complaints have been lodged against that individual or firm. You also might ask that question of your local department of consumer affairs.

Remember, you are doing the hiring here, and it’s certainly a buyer’s market. Take the time to assemble the best team at an affordable price.

You now have some idea what you’ll accomplish by reading this book and then taking steps to implement the information here. You know that planning is an ongoing process, to be revisited time and time again as situations change in your life. You have your planning team in place. Let’s proceed to succeed!