Money & Finance / Senior Living

9 Key Estate-Planning Tools

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You're ready to tackle estate planning, but you're not sure what “equipment” you need. Flounder no more. Here are nine essential estate-planning tools, along with details about what they do and why you need them.


1. Will

A will is a written document in which you identify what you'd like done with your assets upon your death. There's some tension within the estate-planning community about which is better, a will or a trust. But many experts say that if you don't have a complicated estate, a will should do the trick. “All a person of modest means needs is a will,” says John Dadakis, an estate-planning partner at Schiff Hardin LLP in New York City.

Even if you have children, a will may still be enough. “For young couples, a will is usually sufficient,” says Ronald Morton, founder of the Morton Law Firm PLLC in Clinton, Miss. “Generally speaking, your assets aren't significant, and the primary item to address is guardianship of your minor children if both parents die.”

2. Living trust

A living trust is a contract that holds title to and controls your assets. “You put in that document all your plans, wishes and desires,” says Wade Vose, a partner at the Vose Law Firm in Winter Park, Fla., “of how you'd like those things controlled during your life, during disability and when you pass on.”

One difference between a will and a living trust is when they take effect. “A will takes effect only when you die,” says Kristi Mathisen, a CPA and estate planning attorney at the Seattle wealth management firm of Laird Norton Tyee. “A living trust takes effect when you execute it and begins to operate when you transfer assets to it. So if a person who makes a will becomes disabled, the will is of no value to the family in managing the person's assets. That's not true for a living trust, which can provide for a replacement trustee when the trustee becomes incapacitated.”

Vose says trusts are just about always preferable to wills. “One common reason you'd like a living trust is that when done properly, it avoids the probate process, which is long, expensive and very public,” he says. “With a living trust, your assets can pass to your beneficiaries privately without having to go to court, and it's generally a less expensive process.”

Saying probate is expensive can be an understatement. “In California, the statutory fees can be 3 percent to 5 percent of an estate,” says Alan Spiegelman, a wealth management adviser at Northwestern Mutual Wealth Management Co. in San Francisco, who recently shepherded a friend's estate through probate. “Handling my friend's estate took at least 200 hours because he had a will but no trust, and it cost nearly $200,000 in legal fees. If there had been a trust, the assets would have passed outside probate court.”

In Ohio, probate costs are 4.5 percent of the first $100,000, 3.5 percent of the next $300,000, and 2.5 percent of everything over that amount, says Mark Clair, an attorney at The Clair Estate Planning and Elder Care Law Firm in Maumee, Ohio. Nonprobate costs are typically 1.5 percent.

Even if you choose a trust, however, you should also opt for what's called a pour-over will. “It's a will that pours over into the revocable living trust any assets that aren't titled in the trust at the time of your death,” says Steven Oshins, a partner at Oshins & Associates LLC in Las Vegas. “It's necessary because people often neglect to retitle all their assets in the name of their living trust, and a pour-over will act as a catchall to capture those assets. However, those assets will go through probate.”

Whether you go with a will, a trust or both, go with something. “Anyone who has any assets that they care where they go after their death should have an estate plan,” says Spiegelman. “If you say you don't have an estate plan, you actually do. It's just an intestate plan, in which your estate plan is by default decided by a judge according to your state's law.”

3. Durable power of attorney

A durable power of attorney allows a person you designate to access and control your financial assets. It can take effect immediately, or it can “spring” into effect if an event you define triggers its operation, such as incapacitation or unavailability.

4. Prenuptial agreement

“I advise my clients that if they have significant personal assets,” says Spiegelman, “it's really important to keep them separate from their spouse's.” That's especially important if you've been married before. “A prenup is essential in a second marriage,” says Vose, “and you can blame the fact that you're asking for it on the nasty lawyer.”

5. Health care proxy

Also called a durable power of attorney for health care, this document identifies the person you'd like to make medical decisions on your behalf if you become unable to make them yourself.

6. Living will

Through a living will, you tell people what you want done if you need life-sustaining medical treatment. “Many states have statutorily promulgated living wills,” says Vose, “so that if you grab a copy from your local courthouse and check a few boxes, that's going to be enforced.”

7. HIPAA release

A Health Insurance Portability and Accountability Act, or HIPAA, release allows medical professionals to discuss your medical condition with your personal representative. “Federal law imposes privacy requirements on health professionals,” says Vose. “Some hospitals enforce them, and others don't. And sometimes even if you're designated under someone's health care power of attorney, medical professionals won't disclose information to you because you're not designated as that person's HIPAA representative.”

Vose also suggests enrolling in the $45-per-year Docubank, which he does for all his clients. “You send copies of all your health care documents to Docubank. You get a card that you put in your wallet next to your health insurance card. Then medical professionals can punch in your ID number on a phone system, and your documents will come spitting out of the fax machine. That allows them to find someone who will be in charge of your emergency medical care.”

8. Life insurance

“To protect your family if you're a breadwinner, definitely consider life insurance,” says Dadakis. “If you don't have financial responsibilities to others, you don't need life insurance.”

9. A business succession plan

“Estate planning for business owners is significantly different than for people who don't own a business,” says Mina Sirkin, founder of Sirkin & Sirkin in Woodland Hills, Calif. “Let's say I'm a business owner, and I have a child in the business and other children who don't work in the business. I'll probably want to create a transfer arrangement to the child who works in the business and compensate the children who don't work in the business to make sure they're not left out. Also, if I have a trust, I want to make sure my trust provisions agree with my succession plan.”

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