Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some
continued education for some credentials I maintain and it occurred to me that
we all could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
Estate Planning: Your
Need-To-Know
Personal Finance LearnVest is a simple plan for your money.
Have children or elderly parents? What about savings or a home?
If you answered yes to any of these, here's another question for you: Do you have an estate plan in place?
While you may think that estate planning only applies to wealthy individuals with millions in assets who live on, well, estates ... think again.
Plain and simple, estate planning helps protect your family in the event that something bad happens to you. And, yet, 55% of Americans don’t even have a last will, leaving them vulnerable to costly court fees and legal battles.
But even though it’s predicated on incapacitation or death, estate planning doesn’t have to be morbid. In fact, it can actually be life-affirming, because the process will allow you to take a closer look at the people you most care about in life—and ensure their future happiness.
RELATED: The Facts and Myths of Life Insurance
We sat down with Kelly C. Gill, a partner at Friedler Law Group in Massachusetts, one of Super Lawyer’s best firms, to walk us through the most important questions you should think about now.
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LearnVest: Wills, trusts, estate plans …. How do you determine what an individual needs?Kelly C. Gill: The first thing I ask about is the family situation. Are you married? Do you have children? If so, how old are they? Family setup directs a whole portion of the estate-planning process.
The second part is to look at the level of assets to minimize the estate taxes that you’ll pay both federally and in your state. You may not have enough assets to be subject to estate taxes, but without looking at these pieces, we can’t do sound planning. Most states assess their own estate taxes, but some don’t, like Florida. That’s why it’s a great place to retire!
RELATED: Wills and Trusts 101
You end up in probate court—which can be extremely time-consuming and expensive. The court takes a look at your will (if you have one), as well as any heirs or potential creditors, and then oversees the distribution of your assets and payments to creditors. (LearnVest Note: LegalZoom estimates that probate costs American families $2 billion a year—$1.5 billion of which goes to attorney’s fees.)
How can you avoid the probate process?
First off, if you can assign a beneficiary designation to certain assets—like a life insurance policy or a tax-deferred account—you can avoid probate. In the event of your death, the asset will go to the person who you named as the beneficiary. With other assets, like a home or a regular bank account, you can’t designate a beneficiary. If you have these listed in a last will, you’re on the right track—but a last will still has to go through the court.
One way to avoid probate altogether is to create a revocable trust, which lets you transfer ownership of all assets to a trust that lists exactly what happens if you become incapacitated or pass away. You avoid probate because it’s all contained within one document.
RELATED: The Probate Process: What You Need to Know
What else is involved in setting up a trust?
The most important thing you need to remember is to actually transfer the ownership of your assets to the trust, so nothing is left out and sent to probate. It may seem weird to change the ownership of a bank account from your personal name to a trust, but the revocable trust uses your Social Security number as the tax ID—so it’s basically an extension of you. And it won’t change anything for income tax purposes.What if I just want the entire estate to go to my spouse?
You can also avoid probate if everything is owned jointly between you and your spouse—as long as your assets don’t exceed the estate tax exemption. If you have more than the state or federal exemption, you’ll likely want to set up two revocable trusts—one for you, and one for your spouse—to help diminish estate taxes owed.
The reason? Each individual has an estate tax exemption limit. So if the state limit is $1 million, and you and your spouse have a combined $3 million, then $2 million would be assessed for taxes. But if you both had revocable trusts for half of the total estate, only $500,000 could be assessed for each of you.
Also important: If you're married and choose not to get a trust, make sure that you retitle your home, so it’s owned “tenants by the entirety.” This is only given to married couples, but it means that if a spouse dies, the home is automatically passed to the surviving spouse, avoiding probate. It also offers a level of creditor protection to the survivor that’s not offered by other types of property titles.
RELATED: Marital Trusts: How They Work
How can I ensure that my children are properly protected?
If you leave your money outright to your kids in a will in Massachusetts, there’s a uniform transfer of assets once they turn 21. (Different states have different rules.) Of course, most people wouldn’t want a 21-year-old child to get all of their money in a lump sum. By setting up a trust, you can name a responsible trustee who will manage the funds and distribute your assets according to your wishes.
The trustee can also be the designated guardian (the person who looks after your kids on a day-to-day basis), but it doesn’t have to be this way. For instance, if you name your sister as a guardian, but she’s horrible with money, you can name your brother as the trustee. He can then manage the funds, and distribute them to your sister for the care of your children.
RELATED: Protect Your Trust With These Tips
If I create an estate plan when my kids are born, am I all set?
Not quite. It’s important to review your estate planning documents—especially if you have children—every three to five years to make sure you've designated the most appropriate people. For example, if your trustee moves across the country, you’re likely better off naming someone local.
Additionally, if a child has special needs, you’ll want to set up a supplemental needs trust to help provide for your kid once you’re gone. The trust will be written in a way that your child won’t lose any public benefits, such as special housing.
RELATED: How Setting Up a Trust Can Benefit You and Your Dependents
What if my kids are already grown?
You can follow a different guideline, and review your estate plan every time there’s a major life event, such as the birth of a grandchild, the death of a parent or a divorce. You’ll want to revisit those documents because you may inherit assets that you’ll need to protect or you'll have to add or change names on your documents.
Additionally, if your children reach a certain age in adulthood, you may want to rethink the way you structured your trust to pay out your assets. If you'd written it so that your kids would receive one third of your estate at 25, another third at 30 and the final third at 35—and all of them are older than 28—you may decide that they’re responsible enough to receive the full sum at the time of your death.
Are any other people named in estate-planning documents?
It’s important to designate a health care proxy, as well as give someone durable power of attorney. A health care proxy will make medical decisions for you in the event that you can’t make decisions for yourself. When you give someone durable power of attorney, that person can carry out your financial obligations if you’re unable to do so.
RELATED: To Have and to Hold and … Be My Healthcare Proxy?
Any tips for finding the right estate attorney?
You’ll want to make sure that there’s a good personality fit. Remember that this is the person your spouse or family members will be dealing with once you’re gone, so it’s important that everyone gets along.
You also want to make sure that the lawyer you select specializes in estate planning, and doesn’t just occasionally write wills and health care proxies. The way the economic situation is now with regard to taxes, it makes sense to find someone with real experience who'll be able to best handle the process.
More From LearnVest
3 Money Lessons That My Dad Taught Me … in Death
D.I.Y. or Not: Wills and Estate Planning
Money Mic: How My Dad’s Life Insurance Saved Our Family
(As with any of these informative articles,
anyone who needs someone to talk to about
this
very subject contact me and I can direct you to a knowledgeable advisor).
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