Important Strategies For Organizing Your Estate

More fortunately, than unfortunately, nobody knows when she or he is going to pass-on. For that matter, we do not like thinking about this inevitable occurrence, and because we do not like to think about our death, many of us do not take advantage of fundamental estate planning strategies that can save our families and loved ones a great deal of financial and emotional heart ache.

Proper estate planning allows us to preserve and pass on to our loved ones everything that we have earned and saved. It is the process of arranging our material assets in such a way that they pass to intended beneficiaries with as little delay, expense, and taxation as possible. Without proper estate planning, taxes and expenses can claim up to half of our estates with the remaining half passing to unintended beneficiaries.

Remarkably, not just the wealthy need proper estate planning. Poor and nonexistent planning for the wealthy means that one might not receive three million, just one million. While, for those of us with more modest means, improper estate planning could cause serious, if not total, diminishment of our estates. Fortunately, this article suggests easily understood and implemented strategies that we can all use.

STRATEGY ONE – THE WILL
A Last Will and Testament is a legal document which controls the disposition of your property at death and may, is you so desire, provide for guardianship for your children after your death. Because estates grow daily in value through the repayment of mortgages, the appreciation of real estate, stocks and other securities, the receipt of inheritances from relatives, etc., everyone who owns any real or personal property should have a will regardless of the present value of their estate. .

When a person dies without a will (or dies intestate, as the law calls it) the property of the deceased is distributed according to a formula fixed by law. In other words, if you don't make a will, you don't have any say as to how your property will be divided. Take the case of a Massachusetts resident dying without a will. If this person dies leaving children, the surviving spouse usually only receives 1/2 the estate, with the children receiving the other half. Now usually a person would prefer that all of his estate, if it is not large, go to the surviving spouse. If there are any children under 18, the property cannot be delivered to them and a guardian must be appointed for them. A guardian will require considerable expense and could create legal problems that might have been avoided with a will. Most important for mothers and fathers, however, is not the disposition of their property after their death, but rather the proper care and custody of their minor children. Grandparents, other family members and godparents do not automatically receive custody of children who do not have a surviving parent. Your will should specify the individual, as well as an alternate, that you would like to designate as the guardian of your children. This decision on your part will be of great assistance to the court in determining who will receive the custody of your children.

A properly drafted will may reduce the expense of administration in a number of ways. Provisions can be placed in wills that take full advantage of the federal and state tax laws. Drawing a will can avoid the expense of posting bond or appointing a guardian for your children. A will can save money for you and your family if it is properly drafted.

STRATEGY TWO – A GENERAL DURABLE POWER OF ATTORNEY
A durable power of attorney is a document that allows someone else to act as your legal agent. It remains in effect even if the principle becomes disabled or incompetent. A durable power of attorney should be considered to allow you to avoid the need for the appointment of a guardian or conservator if you become incapacitated or disabled. It also allows you to provide for the management of your financial affairs; to pay your bills and to your collect Social Security payments; to deposit and to cash your checks; to buy and to sell real estate, to continue operating a business; to begin or to continue estate planning or Medicaid planning, etc. It can create valid and legal debts in your name or it can authorize a person to pay off your debts. If you do decide to invest in a durable power of attorney, just make sure that you designate a trustworthy individual as our agent.

The two types of powers of attorney are general and special powers of attorney. A general power of attorney allows your agent to do any and all things that you could legally do, from registering a car to selling a house. A special or limited power of attorney lists a particular act that the agent is authorized to do and limits the agent to that act. The agent can, of course, be authorized to do more than one legal act in a special power of attorney. Each power of attorney, whether general or specific, must set forth in specific detail all powers that you want your agent or attorney to have. Remember, a power of attorney can avoid the time and expense that always goes hand in hand with court involvement.

STRATEGY THREE – THE HEALTH CARE PROXY AND LIVING WILL
Although some states like Massachusetts do not recognize a Living Will per se, most, as does Massachusetts, recognize the Health Care Proxy (HCP). A HCP allows you to appoint another adult as a "health care agent" for the purpose of making medical and health care decisions for you if you are unable to make or to communicate such decisions for yourself. An alternate health care agent can also be named if your primary one cannot serve or chooses not to serve as your agent. Your agent can only act if your principal attending physician determines that you lack "the capacity to make or to communicate health care decisions," as defined by your state law.

If you do not provide any specific guidelines within the four corners of your HCP, the agent must first consult with health care provides and must consider fully all applicable medical alternatives regarding your diagnosis, prognosis, treatments, and side effects; then, the agent can make a decision in accordance with his or her assessment of your wishes, if known, including your religious and moral beliefs, or if your wishes are unknown, in accordance with his or her assessment of our best interests.

A Living Will is an advance statement of your intent concerning your future medical treatment, whereas a HCP allows another to make medical decisions for you. Living Will language can be added to a HCP so that if you are treated in a state that does not recognize HCP's, your wishes are at least expressed in writing. Also, having your desires expressed in your HCP assists your agent in making your decisions for you.

STRATEGY FOUR – THE LETTER OF INSTRUCTION
You can write a Letter of Instruction (LOI) to spell out what type of funeral arrangement that you want, here you want to be buried, what type of music you want played at it, etc. A LOI should also state where important documents are kept (your will, bank and investment records, and life insurance policies).

Also because safety deposit boxes are often frozen until your administrator or executor produces a letter testamentary or a letter of administration, you should have three copies of your important papers made. Keep one copy at home, one with your executor, and one with your attorney who should have your original will.

STRATEGY FIVE – TRUSTS
Testamentary trusts and living trusts can help you maximize tax savings. Living trusts get established while you are alive, and testamentary trusts get created through wills and at death.

Living trusts allow you to pass your estate without going through the probate process if all of your property is transferred into the trust. Living trusts can either be revocable or irrevocable. In a revocable living trust, you keep the right to manage your property whether you are the trustee or not, since you have a right to change the terms of the trust, the trustee, and the property in the trust at any time. When you die, your successor trustee distributes the property according to the terms of the trust. The successor trustee can be your spouse or an adult child, or even a bank if you are willing to have the bank's fees paid from the trust. If taxes are not an issue in your estate - and they are not in a vast majority of them - (i.e., you fall beneath the federal estate and gift tax unified credit), then you should consider creating a revocable living trust. You should first consult a knowledgeable an attorney before making any final decisions about trusts.

Irrevocable living trusts offer tax advantages for those whose estates exceed the federal estate and gift tax unified credit. In year 2000 it is $675,000; in year 2001 it will be $700,000. An irrevocable living trust does not avoid taxes entirely, it merely sets up a separate taxable entity that might be able to pay taxes at a lower rate than if all the assets were combined in one state. The main disadvantage of an irrevocable living trust is your loss of control and ownership of the property that you put into the trust. Fortunately, as you relinquish all incidents of ownership over your irrevocable living trust property, the government does not attribute that property to your estate and you are not taxed on it. You will only be taxed on your income if you name yourself as a trust beneficiary, and receive income generated from the trust.

Disadvantages to the Living Trust: Again, the main disadvantage of an irrevocable living trust is your loss of control and ownership of the property that you put into the trust. Living trusts do not make a will unnecessary. You still need a will to take care of assets you fail to transfer to the trust or that you acquire shortly before your death, and not all property lends itself to being transferred into a trust: jewelry is tough to keep track of; cars can be trouble getting insurance on since you no longer own them. Registration fees and other incidental costs of the trust are incurred upfront. Unfortunately, often times, with trusts, you do not save and in most cases living trusts create additional expenses at death.

STRATEGY SIX – LIFE INSURANCE
Life insurance is only one type of property that a person may own. If a life insurance policy is payable to an individual, the will of the insured has no effect on the proceeds. If the policy is payable to the estate of the insured, the payment of the proceeds may be directed by a will. The careful person will have a lawyer and life insurance counselor work together on a life insurance program, as one important aspect of estate planning.

STRATEGY SEVEN – PREPLAN YOUR FUNERAL
The funeral ranks up there with major weddings, homes, and automobiles as one of the major expenses of life. The cost of the average funeral is usually from $5,000 to $10,000. Relieve your survivors from the emotional and financial stress of your departing - prepare for it.

STRATEGY EIGHT – CALCULATE YOUR NET WORTH
By calculating your net worth you can determine if you need to do serious estate planning in order to take advantage of your unified credit. Currently, you can pass up to $675,000 with incurring federal estate taxes Married couples with properly written will can pass up to $1.35 million. When you calculate your net worth, ensure that you include all life insurance policies, real estate, and anything left in your name as part of your estate - even potential inheritances. See an attorney to help you determine if federal and state taxes will be an issue for your estate.

LASTLY:
See an attorney or a financial counselor to help you with your estate planning. Seeing a lawyer early may not only solve a problem that you have, it may also resolve or avoid a problem in the future, on this or other unrelated subjects.