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When
There's No Will -
There's
no excuse for failing to plan for your family. -
In February
1997, Patricia Powell was killed in a car accident. Her husband
Ray, an alcoholic who'd been sober for 12 years, fell apart and
started drinking. A year later he died of liver disease. They
left three children, a modest Maryland house and a $100,000 life
insurance policy. But they named no guardian and they left no
will.That, I suppose, shouldn't come as a surprise. According
to a landmark Consumer Reports survey, 70% of the people in this
country don't have wills. That unfortunate statistic includes
an awful lot of parents--and more of my friends than I care to
count. What followed in the Powell case, however, was wildly unusual.
With the help of an attorney, the middle child, Shawn, age 10,
filed for bankruptcy in August. It was a gambit to prevent foreclosure
on the house. The family had no savings and no rich relatives.
And until a court-appointed guardian was in place to receive a
check, the life insurance company wouldn't pay. It was a nightmare,
says the attorney, Brett Weiss. And it could have been avoided,
with Estate Planning 101.
There are
several documents that parents--and anyone else who wants to control
the disposition of their assets--must have. They're not costly.
Having a lawyer prepare them runs around $500. Or you can do it
yourself with software like Nolo's Willmaker ($69.95). Don't let
the year end without making sure your kids are taken care of.
Here's what you need:
- A will.
It can be quite basic, one that passes everything to your spouse
(or whomever) and then--for families--into a trust for minors.
It should name an executor to transfer the title of your assets
and a guardian to raise your kids. They don't have to be the
same person, but attorney R. Daniel Brady of Raleigh, N.C. cautions
against naming a couple as guardians: "In case of divorce,
that's asking for trouble."
- A durable
power of attorney. This gives someone the ability to handle
your finances--write checks, sell stocks and so on-if you're
incapacitated. The person you choose may double as your executor
but, again, it's not a must.
- Advanced
directives. You need a living will that specifies whether
you want life support and a health-care proxy that gives another
person the right to make health-care decisions for you if you
can't. (Doctors sometimes ignore living wills, but having one
can help guide the person with the proxy.) Parents should also
ask about an authorization for health care for a minor child,
which gives your delegate the right to consent to medical care
for your kids. That's an especially good idea if you travel
without them.
- A family
trust.
Parents' wills should dictate that assets flow into a family
trust rather than directly to minors. You name a trustee who
can spend the money for things like health care and education.
Then, typically when the kids turn 25, the money is parceled
out in chunks. Notes Brady: You may be tempted to split the
assets equally among your kids from the moment the money arrives
in the trust. Don't. Lumping the funds together gives your trustee
the ability to use discretion as a parent might. As for the
Powell kids, the attorney says it looks as if they'll keep the
house, mostly because their parents did one thing right: They
purchased life insurance. "If it hadn't been for that,
we might have been able to delay the inevitable," he says.
"But that would have been all we could have done."
This
article was reprinted from Money Magazine, contributor, Jean
Sherman Chatzky, 1998 Year-End Financial Guide Special Issue
Vol. 27 No. 13 and was provided to us by: Mark Writer of Prepaid
Legal Services
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