Have you been putting off trying to get your estate in order?   Whether it be having a will drafted, setting up a trust, or simply reviewing your beneficiaries – it’s time to to make the next step.   As you begin the estate planning process, here is a checklist to help you along the way.   If you’ve put it off for too long, it’s time to get going.

Take Out a Will

Who doesn’t have a will? You might be surprised. Some tremendously wealthy people have passed away without leaving a valid will. For example, Pablo Picasso and even Howard Hughes!

It is startling how many people never get around to this, even to the point of buying a will-in-a-box at a stationery store or setting one up online. A recent Lawyers.com survey of 1,022 Americans found that just 35% had wills. (For that matter, only 18% had some kind of trust.)

A solid will drafted with the guidance of an estate planning attorney may cost you more than the will-in-a-box, but may prove to be some of the best money you ever spend. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity.

Don’t Forget the Other Stuff

Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items.

You should know that a living will is not the same thing as a durable medical power of attorney. A living will makes your wishes known when it comes to life-prolonging medical treatments, and it takes the form of a directive. A durable medical power of attorney authorizes another party to make medical decisions for you (including end-of-life decisions) if you become incapacitated or otherwise unable to make these decisions.

Beneficiary Review

Who is the beneficiary of your IRA? How about your 401(k)? How about your annuity or life insurance policy? If your answer is along the lines of “Mm … you know … I’m pretty sure it’s…” or “It’s been a while since …”, then be sure to check the documents and verify who the designated beneficiary is.

When it comes to retirement accounts and life insurance, many people don’t know that beneficiary designations take priority over bequests made in wills and living trusts. If you long ago named a child now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die – regardless of what your will states.

Time has a way of altering our beneficiary decisions. This is why some estate planners recommend that you review your beneficiaries every two years.

In some states, you can authorize transfer-on-death designations. This is a tactic against probate: TOD designations may permit the ownership transfer of securities (and in a few states, forms of real property, vehicles and other assets) immediately at your death to the person designated. TOD designations are sometimes referred to as “will substitutes” but they usually pertain only to securities.

Net Worth Update

Does this sound like a lot of work? It may not be. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

• One list should detail your real property and personal property assets. It should list any real estate you own, and its worth; it should also list personal property items in your home, garage, backyard, warehouse, storage unit or small business that have notable monetary worth.
• Another list should detail your bank and brokerage accounts, your retirement accounts, and any other forms of investment plus any insurance policies.
• A third list should detail your credit card debts, your mortgage and/or HELOC, and any other outstanding consumer loans.

Think about consolidating your “stray” IRAs and bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

Let your heirs know the causes and charities that mean the most to you. Have you ever seen the phrase, “In lieu of flowers, donations may be made to …” Well, perhaps you would like to suggest donations to this or that charity when you pass. Write down the associations you belong to and the organizations you support. Some non-profits do offer accidental life insurance benefits to heirs of members.

Find the Right Executor

Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a stark possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person?

Your executor should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.

Find the Right Professionals

Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing.

Many people have the idea that they don’t need an estate plan because their net worth is less than X dollars. Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

photo credit: Jonnee

Who really want to deal with the idea of planning their own funeral and preparing themselves and their family for eventuality of their death? It’s not an easy business, no doubt about it. Yet, it does make sense and it provides you with the chance to make sure that everything is in order. This can help cut down the complications and difficulties faced by those left behind.

Essentials for Pre-Funeral Arrangements

By planning your funeral in advance you can make all of the decisions about where the funeral will be held, what type of arrangements (burial or cremation) you’re having, as well the place of interment, and associated details. By doing this you should decrease what would typically be the average cost of a normal funeral. Maybe there are question about whether to have a closed-casket or an open-casket service. Perhaps, you have preferences about religious services or whether they’re held in a church or a mortuary. You might not want any services at all. Or you’d rather just have a small service for family only and a more public visitation. All of these aspects and more can be decided in advance.

The list can be endless, so you need to come up with a comprehensive picture of what it is you want your funeral services to be like. The situation may be slightly different if you are trying to help someone else make pre-funeral arrangements. It is a highly personal task, but one that can provide peace of mind to you (and your family members).

More Than The Service

Pre-funeral arrangements are about much more than choosing the cemetery, the plot, the flowers by post, and the type of casket you want. It is about controlling how your final arrangements are managed at every level. The whole point is to make sure that your final wishes are honored. This is why pre-funeral arrangements may be legitimized in legal form by including them in a Will. With all of this settled and written up in your last will and testament you can then focus on simply living.

Another aspect worth noting is how your life insurance will be used at this time. It is matter of arranging the proper distribution of the insurance payouts to cover all of the essential funeral preparations while also providing your family added security by covering other expenses.

Take Some Time

Since you are planning an event that is hopefully far in the future there is typically no need to get in a big hurry about pre-arranging your funeral. There is nothing wrong with taking some time to do some comparisons on different aspects of the funeral costs to make sure you are spending your money responsibly. Shop around to gather different options and weigh one type of funeral package against another.

By spending some time on this you can include your loved ones in the process. This can be a bonding time in some cases. In the end, nothing really prepares you for death. You can only do your best to make sure you have done all that you can to get your final expenses in good order.

This is one of the most common questions asked around the idea of wills. I’ve heard numbers all over the board. Some saying that 1 in 4 people currently don’t have a will. I’ve also heard 1 in 3, and recently heard a statistic that 300,000 people die without a will every year in Britain.

photo credit: iowa_spirit_walker

Now, I can’t vouch for the truth of these stats, but what I’m sure is true is this – more people die without a will each year than really should. Given the relative ease of creating a will, and new ways (like low-cost online services) that make it less expensive, creating a will has never been easier. This is one of those financial things that, with a little education, most people could exercise control over.

So What Really Happens if You Pass Away Without a Will?

There’s no one answer, but there are some commonalities. Between different states, there are different rules, although many stick to a loose sense of how money should be distributed. Additionally, your marital status, and whether you have children or not (also how many children you have) affect where your belongings go.

If you’re married and have children, often the money is split up into half between your spouse and children. Often the spouse will get one third to one half of the total sum, and the rest is split among the children. This is usually done regardless of the age of the children. So if you have a child who is 15 and another who is 30, they’re probably going to end up with the same amount.

If you’re married but you don’t have children, your spouse gets about the same amount as if you did have children (one third to one half). The difference is that the remainder often goes to the parents of the deceased. If the deceased has no remaining parents, the siblings of the deceased share the money equally among them. It’s interesting to note that even half siblings receive a share, no different than siblings that come from the same set of parents.

If you’re single but have children, the law tends to be very clear. The entirety of the sum often goes to the children, who split it evenly. Usually there’s no provision for the other parent of the deceased’s children. This is one of the more frustrating aspects of the law for people who have been in long term relationships, yet remain unmarried. No matter whether they have had children or not, the state almost always regards them as single entities.

If you’re single and have no children, your possessions usually go to your parents. If they are deceased, property is typically split evenly among any siblings you have. The same rule of half-siblings being treated the same as full siblings tends to apply.

What About Other Circumstances

Family circumstances can be extremely complex, and the explanations above are not meant to cover every person in every state (or country). There are frequently extenuating circumstances that make each probate case a little more finicky.
For cases outside the above stated circumstances, there are clauses that suggest money should go to grandparents, aunts and uncles, children of a deceased spouse, relatives of a deceased spouse, and finally to the state you were considered a legal resident of.

As a general rule, avoiding probate court is ideal whenever possible. While you may have heard of this advice, unless you have been through the process you might not understand why. In a nutshell, probate describes the process or procedure used to settle the estate of a person who has passed away. When an estate is in the probate process, all steps are court supervised which can result in a long, drawn out process that can quickly become expensive due to attorney fees and court costs. This is one of the reasons why most people would prefer to avoid probate, another is the amount of time an estate could be tied up in legal proceedings. To make it easier on your loved ones and reduce the stress and burden of dealing with an estate in probate, consider the following tips to ensure your estate is handled with the least amount of difficulty.

photo credit: mliu92

Estate planning for Probate

The easiest way to avoid probate is by taking steps today to plan for the handling of your estate. The following are popular ways to pass property and assets directly to your beneficiaries without going through probate.

• Name your beneficiaries- Life insurance policies and retirement plans allow the owner of the account to determine who will receive these assets at the time of death. By naming your beneficiaries you bypass any probate of these assets as they are contractually obligated to pass to the beneficiary named.
• Living trust- Sometimes referred to as a revocable living trust or revocable trust, this tool is intended to help people avoid probate. A living trust can be set up by an estate attorney and gives the creator the opportunity to re-title all of their assets to the trustee (who can also be the creator of the trust). This allows you to retain control of your assets for as long as you wish including making changes to the trust. At the time of your death, all of your assets will be a part of the living trust which is not considered part of your estate. This allows the successor trustee (determined by you) to control the trust and administer it as you have directed.
• Set up payable-on-death accounts- Depending on the state in which you reside, you can convert bank accounts, retirement accounts, vehicle registrations and more to your beneficiaries at the time of your death. This will prevent these assets from going into probate.
• Joint ownership for property- If you do not want property to go into probate, consider joint ownership which will automatically transfer the property to the other person named on the deed at the time of your death.
• Gifts- Another popular way to avoid probate is to gift your property or assets to beneficiaries while you are still alive.

Keys to Avoiding Probate

When you plan your estate properly you can ensure your assets get passed on to the people intended without the hassles and cost of going through probate. Your loved ones will benefit from your foresight by not having to deal with the additional burden of probate at an already difficult time in their lives.

Do you have a philanthropist spirit within you?   Gifting to charities gives us a feeling of doing good.  The notion that we can help someone that is in need gives us a special reward like no other.  From a financial standpoint, there are some notable tax advantages from gifting, too.   If you’re going to be nice, might as well be rewarded for it, right?  If you’re considering leaving a legacy to your favorite charity, here’s a rundown of the gifting rules on some of the more popular options.

photo credit: jillyspoon

Charitable remainder trusts (CRTs).

These trusts can be useful estate planning tools. People with highly appreciated assets – such as stocks or real estate – are often hesitant to sell those assets and reinvest the proceeds because of the capital gains taxes that could result from the sale. Could the CRT offer a solution to this problem?

CRTs are tax-exempt trusts.

In transferring highly appreciated assets into a CRT, you get: a) a tax deduction for the present value of your future charitable gift, b) income payments from the CRT for up to 20 years, and c) tax-free compounding of the assets within the CRT. You avoid paying capital gains taxes on the amount of your gift, and you can exclude an otherwise taxable asset from your estate.

After you die, some or all of the assets in the CRT will go to the charity (or charities) of your choice. (What about your heirs? You can structure a CRT in conjunction with an irrevocable life insurance trust so that they are not disinherited as a result.)

A charitable remainder annuity trust (CRAT) pays out a fixed income based on a percentage of the initial fair market value of the asset(s) placed in the trust. In a charitable remainder unitrust (CRUT), income from the trust can increase as the trust assets grow with time.2

Charitable lead trusts (CLTs).

This is the inverse of a CRT. You transfer assets to the CLT, and it periodically pays a percentage of the value of the trust assets to the charity. At the end of the trust term, your heirs receive the assets within the trust. You don’t get an income tax deduction by creating a CLT, but your gift or estate tax could be markedly reduced.

Charitable gift annuities.

Universities commonly suggest these investment vehicles to alumni and donors. (The concept has been around since the mid-1800s.) Basically, you donate money to a university or charity in exchange for a flow of income. You (and optionally, your spouse) receive lifelong annuity payments. After you pass away, the balance of the money you have donated goes to the charity. You can also claim a charitable deduction on your income tax return in the year you make the gift.

Pooled income funds.

No, we’re not going diving on this one. In this variation on the charitable gift annuity, the assets you donate are unitized and “pooled” with the assets of other donors. So essentially, you are buying “units” in an investment pool, like an investor in a mutual fund. The rate of return on your investment varies from year to year.

Pooled income funds often appeal to wealthier donors who don’t have a pressing need for fixed annuity payments. As just interest and dividends are paid out of a pooled income fund, it is possible to shield the whole gain from, say, a highly appreciated stock through such a fund. You get an immediate income tax deduction for a portion of the gift, which can be spread over a few consecutive tax years. Also, the balance of the assets left to the charity at your death may be greater than if a charitable gift annuity is used. Another nice option: you can put more assets in the fund over time, whereas a charitable gift annuity is based on one lump sum gift.

Donor advised funds.

A DAF is a variation on the “family foundation” concept. Unlike a private foundation, it is not subject to excise taxes, and it does not require employees and lawyers to implement and administer. You establish a DAF with a lump sum gift to a public charity. The gift becomes property of the charity, which manages the assets. (You can continue to contribute to the fund.) Each year, the charity determines the percentage of the value of the fund which will become available for grants or other programs. You advise the charity how to spend the money. DAF contributions are tax-deductible in the year that they are made. You may avoid capital gains taxes and estate taxes on the gift, and the assets may grow tax-free.

Scholarships.

These can be created at a school in your own name or in memory of a loved one, and you can set the criteria. Commonly, you and your advisor can work directly with a school to create one.

Life insurance and life estate gifts.

Some people have unwanted or inadequate life insurance policies that may end up increasing the size of their taxable estates. In such cases, a policyholder may elect to donate their policy to charity. By doing this, the donor reduces the size of his or her taxable estate and enjoys a current tax deduction for the amount of the cash value in the policy. The charity can receive a large gift at the donor’s death, or they can tap into the cash value of the policy to meet current needs.

Life estate gifts are an interesting option allowing you to gift real estate to a charity, university, or other non-profit – even while you live there. You can take a tax deduction based on the value of property, avoid capital gains tax, and live on the property for the rest of your life. (If somehow you can’t remain at that residence, the charity may opt to lease or sell it. You can gift all of a property or just some of a property as appropriate.)

Give carefully.

If you are thinking about making a charitable gift, remember that the amount of your tax deduction will ultimately depend on the kind of assets you contribute, and the variables of your individual tax situation. Remember also that some charitable gifts are irrevocable. Be sure to consult qualified financial, legal and tax advisors for more information before you decide if, when and how to give.

This is a guest post from Jeff Rose, CFP and independent financial advisor from the blog Good Financial Cents.

The repeal of the estate tax is sun set. It is doubtful that the Obama administration will have it rise again. This means a readjustment to 2002 rates following the 2010 fiscal year. Few are happy about it, but rather than complain, you can control what they can. It begins with a comprehensive review of exactly where you are in your estate planning process. The following is a checklist of items needed for baby boomers that are concerned about estate planning and their family.

1. List all assets and liabilities accurately. Include regular payment dates and amounts due.

2. Provide complete information about assets other than cash or securities. Real estate, automobiles, and boats are examples. Indicate whether these assets are in your name, or if they are owned jointly with your spouse or another individual. Also be sure to include the location, especially if out of state .

3. Indicate names, ages, and addresses of family members of friends you intend to name as beneficiaries.

4. If you currently have a will on file with an attorney or financial institution, give a copy of the document to your financial advisor or another trusted individual.

5. Include estimations, current balances, and projections, if available, of all employee benefits, plan, and entitlements, such as 401(k) plans and individual retirement accounts, as well as the beneficiary designation of the plan.  If you have a QDRO on your 401k, make sure you have a copy of that on file, too.

6. Provide copies of any gift tax forms previously filed to your independent financial advisor.

8. Provide copies of any important documents, particularly those relating to divorce, annulment, separation, adoption, or has who was won custody of the children. Don’t overlook these in ownership for real estate. If possible,  outline how you want the property to pass in each of the following situations: They predecease a spouse, a spouse predeceases them, one or more of your children predeceases you, you predecease the parent or other older relative who may not remain financially independent.

9. Consider how you would respond to the following questions: In the event of you and your spouse die at the same time in a common accident, for example, at what ages would you want property to be available to your children without restriction? At this time, should the need arise, whom would you wish to be designated as guardians of your children? If your chosen guardian becomes unable to care for your children, who would you want to succeed them?

10. List all charitable organizations, including schools and universities, you expect to mention in your estate plan, and tie up an amount of property you intend them to receive.

11. Specifically list items of personal property you want particular individuals to have upon your death, if you predecease your spouse and what other dispositions you would make if your spouse predeceases you. Don’t underestimate the importance of this step, it can be a mistake to assume that people will simply work things through on their own. Often, it’s helpful to discuss openly with family members and close friends your desire for them to have of sentimental, as well as monetary, value.

This is just sample checklist you can use.  The main point is that you need to be organized and keep the right people informed of your decisions.

As baby boomers age, estate planning starts to become an issue.  You start to really ponder about life after you are not there.  Part of that process is making sure your estate is in order.  Whether its passing on effectively to your heirs or donating to you favorite charitable cause.  Seniors today have to contend with a dirty little secret that was put in place by Congress when they passed the Deficit Reduction Act of 2005.

Dirty Little Secret

The DRA made changes in the way that government will punish seniors for acts of both charity and gift giving.  The rules that govern medical and long-term care benefits presume when a senior makes a charitable or family gift, that the gift was an attempt to get rid of excess assets in order to qualify for medical and nursing home expenses.  That’s right- SENIORS ARE GUILTY UNTIL PROVEN INNOCENT! The burden of proof is on seniors to show that when they gave money to their church or child, that they had some other reason than to qualify for benefits.

Cruel and Unfair?

This DRA rule creates a cruel penalty of ineligibility for services if and when a senior who gave away money needs nursing home services at any time withing 5 years after the gift.  In effect, our government has created a punishment for seniors who may suffer chronic long-term illness within 5 years after a gift.

As long as this law is in place, seniors must remember that the IRS gift tax rule allowing gifting up to $13,000 tax-free is only a tax rule.  Giving away $13,000 may cause a senior to suffer a loss in nursing home coverage of 2 to 3 months if they need such assistance within 60 months after giving that money away.

Thanks to our government, charity and other gift giving may now be hazardous to your health care!

Supposedly, this is a true story.  I wasn’t able to verify whether it is actually true or not.  Probably not, but if you ever had to deal with a customer service representative over the phone you can probably relate to this anyway.    From my own personal experiences I find it believable.  Even if isn’t not actually true, I find it way too funny not to share!  Maybe someone out there can either verify or deny its accuracy.

Cancel Your Credit Cards Before You die!

Now some people can really be stupid!!!  Here is the story.

A lady died this past January, and Citibank billed her in February and March their annual service charges on her credit card account.  They also billed her for the added late charge fees and interest for the monthly charge.  The balance had been $0.00 when she died, but now is somewhere around $60.00.  A family member placed a call to Citibank.

The Exchange:

After verifying the account name and number and all the boring preliminary stuff, here is the rest of the exchange:

Family Member: ‘ I am calling to tell you she died back in January.’

Citibank: ‘ ‘The account was never closed and the late fees and charges still apply.’

Family Member: ‘ Maybe you should turn it over to collections.’

Citibank: ‘ Since it is two months past due, it already has been.’

Family Member: ‘ So, what will they do when they find out she is dead? ‘

Citibank: ‘ Either they will report her account to the frauds division or they will report her to the credit bureau, or maybe both!’

Family Member: ‘ Do you think God will be mad at her?’

Citibank: ‘ Excuse me?’

Family Member: ‘ Did you get what I am telling you? ‘

Citibank: ‘ Sir, you’ll have to speak to my supervisor.’

The Supervisor gets on the Phone:

Family Member: ‘I’m calling to to tell you , she died back in January with a $0 balance.’

Citibank: ‘ The account was never closed and the late fees and charges still apply.’

Family Member: ‘ You mean you want to charge the estate?’

Citibank: (Stammer)  ‘Are you a lawyer?’

Family member: ‘ No, I’m her great nephew.’ (Lawyer information was given)

Citibank: ‘ Could you fax us the Certificate  of Death?’

Family Member: ‘ Sure.”  (Fax number was given)

After They Received the Certificate of Death:

Citibank: ‘ Our system just isn’t set up for death.  I don’t know what more I can do to help.’

Family member: ‘ Well, if you figure it out, great!  If not, you can just keep billing her.  She won’t care.’

Citibank: ‘ Well, the fees and charges will still apply.’ ( What is wrong with these people? )

Family Member: ‘ Would you like a new billing address?’

Citibank: ‘ That might help …’

Family member: ” Odessa Memorial Cemetery, Highway 129, Plot 69.’

Citibank: ‘ Sir, that’s a cemetery!’

Family Member: ‘ And what do you do with dead people on your planet???’

Priceless -

And you wondered why Citi is going broke and needs the feds to bail them out!!!

So, the question becomes, ‘ Should you really cancel all of your credit cards before you die?’  Or maybe, if you really know when you are going to die, and lean toward the dishonest side, just crank up the spending and have a good time?  If anyone has had such an experience or if anyone has advice on the subject please help us out and chime in!  Junior might even have the answers.  He’s the expert on finances.  Papa.

Related Article:

Identity Theft – Capital One Saved Me!

Baby boomers are flocking into retirement.  Some of their most common concerns are running out of money during retirement and having to fit the bill for the rising costs of health care.  Surprisingly enough, many boomers fail to plan for what happens after they are gone.  Most boomers get overwhelmed when they ponder the ins and outs of estate planning.  What most boomers don’t realize is that by drafting a simple will, most of their estate plans will be taken care of.  By drafting a will, your estate should be taken care after your passing and your heirs will be saved from the headache of having to properly distribute your assets.

What Happens If Boomers Don’t Have a Will

Most boomers don’t draft a will because they don’t know what it really know what it means to not have one.  To die without a will, the legal term refers to dying “intestate”.  Dying intestate either means that you didn’t have a will drafted before you died, or your will doesn’t meet the requirements of the state law that you’re residing.

Avoid Probate at all costs…right?

When you die without a will, you are subject to probate.  Probate has become the “four letter” word of estate planning by most estate planning attorneys.  Depending on your situation, probate may not be that horrible.  While probate is usually the standard, you may also pass $100,000 with a small estate affidavit with or without a will. Probate allows for clean titling of your assets to go directly to your next of kin. One potential downside of probate is that your matters are made public and anybody is allowed to make a claim against your property. If you ever check your local paper, you can see examples of estates filing for probate.

On the other side of the coin, one way of looking at probate is that you are leaving it up to the government to decide how you want your estate divided. If you are okay with this, then maybe probate is okay.  Just because you are okay with the state handling your affairs after you are gone, doesn’t mean that you shouldn’t have a will.

What a “Will” will do

1. It allows you to give away your property that you own in your name the way that you want to.
2. It allows you to nominate an executor to take care of all of your last affairs as far as paying bills, et cetera,
3. It allows you to nominate a guardian for your minor children.

Obviously, if you don’t have a will, then these three things won’t be carried out.  You are then subject to your state laws to determine what the outcome of your estate is.

Who Gets Your Property?

If you die without a will, than your property is distributed pursuant to your state laws, and will most typically pass to your closest heirs. But who are your closest heirs? That depends greatly on your family situation, and the intestacy law covers pretty much every possibility. If you die without a will, the statue provides that your estate (anything that is in your name only) passes ½ to your spouse and ½ to your children. Is that what your intent is? Maybe, or maybe not. These are things to consider. Further complications are step-children (they are not considered children under statue) and children from a prior relationship (they are considered yours). These are all issues that can be resolved and simplified from having a will.

Estate Tax Benefits

One last thing to consider is the estate planning benefits that a will can accomplish.  Many time boomers say “I don’t have an Estate, why do I need an Estate Plan?”. This is very unfortunate.  Seeking some information on the basics of a will and estate Planning can be a huge comfort for you and your family.

Moolanomy: Do You Have a Will?