No matter how big or small your estate will be, an easy way to start an expensive family feud is to die without leaving a written record of your wishes. Between the lawyers and the IRS, much of what you spent your entire life accumulating could be drained away. And if you have children, they may end up with little or nothing and living with guardians you never would have wanted to raise them.
To prevent this nightmare, use the list that follows to make sure the basics are covered. Don’t put these items off any longer—they are not just for someone at retirement age! By the way, if your parents are still living and you have not discussed these topics with them, send them a link to this Web site, too.
Sign a will
At a minimum, everyone should have a will. Without a properly executed will, your worldly possessions could be tied up for months or years in an arcane procedure known as “probate,” with lawyers, courts and the taxman getting more of your money than the people you love. The original copy of a will usually is kept in the safe of the lawyer. If you keep it, make sure not to put all the copies of your will into your safe deposit box. It might be sealed upon your death, which will make things difficult for your heirs.
Appoint trustees and guardians for your children under the age of 21
Who could best raise your kids? Who would be best able to manage their assets? (They don’t have to be the same person.) These aren’t decisions to be made lightly, or under the influence of guilt feelings. Make sure the people you choose would be willing to take on these serious responsibilities. Then make it easy on the ones who will be left behind by explaining what you’re doing and why.
Choose people you trust to make decisions when you can’t and then sign a durable power of attorney to empower the person you select to handle your finances should you become incapacitated. Also sign a health care proxy to appoint a family member or friend to make medical decisions if you’re incapable of doing so and a living will to spell out your treatment wishes, such as whether you’d want to be resuscitated should you become gravely ill and unable to make decisions for yourself. Your attorney can draw up these documents for you while preparing or updating your will.
Decide on your final wishes, and tell your loved ones so they know what they are
When the time comes, as it inevitably will, your family needs to know the funeral arrangements you prefer and your views on organ donation. They also need to know the whereabouts of your will, all insurance policies, any safe deposit boxes, lists of assets, names of brokers, account numbers and a veritable book full of other vital details. Keeping an up-to-date organizer may be a nuisance, but not having one may give loved ones a nearly impossible knot to untie.
Take the time to list all your important papers and their locations and keep an up-to-date copy in a safe place outside your home, such as at your office or with your attorney. Be sure to include:
- Power of attorney
- Living will/health care proxy
- Funeral plans and burial instructions
- Bank and investment accounts
- Pension and retirement accounts
- Insurance policies (life, health, disability, long-term care, auto, home)
- Property deeds
- Vehicle registration/title
- Loan agreements
- Income tax records
While you’re at it, put together a contact list of the key people in your life who might need to be called in the event of serious illness or death: attorney, accountant, financial planner, clergy, doctors, close friends and neighbors.
Tip: If you have a home safe and/or use a bank safe deposit box, make sure that a trusted relative, friend or adviser has the know-how and authorization to gain access.
Update your beneficiaries. If you get married or divorced, or if there are other important life changes, you must update the beneficiaries on your investment accounts, life insurance policies, etc. If you do not, keep in mind that whomever you named as beneficiary will inherit the asset, even if you named someone else in your will.
Tip: Keep in mind that jointly held property legally belong to the co-owners—no matter what your will says. So think twice before putting someone else’s name on your real estate deed or bank account. The same holds for the beneficiary of an IRA or life insurance policy.
Did you know? Union members are automatically enrolled in the Union Plus Legal Service. This entitles you to the following benefits for each separate legal matter:
- A free initial consultation of up to 30 minutes with a lawyer (in person or over the phone)
- A free simple document review and explanation
- A free follow-up letter or phone call, if likely to resolve a legal matter
- A discount of 30% (including an attorney’s hourly rates and flat fees for most common legal cases) on additional services
If you don’t have the important documents you need, let your union make it easier and cheaper to get them!
Estate planning tips
As you complete the items on the list above, you also may want to consider more advanced estate planning issues, such as creating a trust and minimizing taxes.
Why a trust
Trusts allow your assets to go directly to your beneficiaries without going through probate. A trust can save your heirs time and money by allowing your property to pass quickly to those you choose to receive or manage it. And unlike a will, which becomes a matter of public record, a trust keeps your affairs private.
There are a number of different types of trusts. Some take effect while you are alive (living trusts), and others after your death (testamentary trusts). Trusts you can’t control or cancel are called irrevocable trusts, while revocable trusts can be changed or terminated. Choosing the right type of trust depends on your personal and financial situation, state laws and taxes.
You may not need a trust if your state has a quick and easy probate procedure, you don’t have a lot of property that will be tied up in probate, and/or there won’t be any challenges to your will (from a former spouse, children from a previous marriage, etc.). But if there is someone who might try to challenge your will, you have a lot of property or you live in a state with an onerous probate process, a living trust may be important.
It may not be as expensive or complicated as you think to set up a living trust, and it may pay for itself in the long run by saving your heirs the cost of probate. You can consult with the attorney who creates your will to find out what type of trust you may need and how much it will cost, or you can consult a number of good books that will show you how to set up your own living trust, or at least educate yourself on the process so you can make an informed decision.
Minimize gift and estate taxes
You can leave everything to your spouse free of taxes, but when he or she passes away, the IRS will be waiting. Your estate may be more valuable than you think. Add up the current value of your home(s), plus your stocks, other retirement accounts and investments, and be sure to include money you have or are likely to inherit. Also add in any pension or life insurance your family would receive. Your assets may exceed the amount that would be exempt from estate taxes—or certainly your parents’ estate may.
The rules are in a state of flux, so you will need to check with a tax adviser or visit the IRS site for updates on tax laws—once you have an estimate of your estate value—to see whether you might be subject to estate taxes. If you would rather see your kids or other heirs get that money, you have a “nice problem” and may need an estate plan to help minimize estate taxes (and make sure your property goes to your heirs as smoothly as possible). A financial adviser can help.
The above information is educational and should not be interpreted as legal or tax advice. For advice that is specific to your circumstances, you should consult a legal or tax advisor.