Nearly 60 percent of U.S. residents in 2008 did not have a will that spelled out exactly how their assets would be divided up upon their death, according to a survey by FindLaw.com.
That’s a sobering statistic. No one wants to talk about dying, and creating a will is not the most pleasant of tasks. But those who take care of their estate planning now will spare their survivors the hardship of deciding how assets should be handled.
1. Know the basic elements of estate planning: There is more to estate planning than drafting a will. Yes, a will is an important part of the process. But you should also create a trust in which you can transfer properties and valuables before you die to help avoid probate and attorney fees later. Finally, you should draft a power-of-attorney letter to appoint a person or organization to handle your financial affairs if you are no longer able to do so.
2. Know the tax laws: In 2009, individuals can leave as much as $3.5 million to heirs tax-free thanks to the federal estate tax exemption. That changes in 2010, when this tax break disappears. It is scheduled to return in 2011, but when it does, individuals will only be able to leave $1 million worth of assets tax-free.
3. A will is not permanent: The good thing about a will is that it is not set until you die. Up until that day, or until you are judged to be mentally incompetent, you can amend your will.
4. Don’t forget the charities: Wills and trusts can also spell out exactly how much of your assets you’d like to leave to charitable organizations.
5. Remember that trusts aren’t only for the rich: If you only have a will, the transfer of property takes place at your death, which means that it has to go through the probate court system. This usually results in much of the estate being swallowed by taxes and attorney fees. You can, though, transfer your assets to a trust while you are still alive.
6. Spouses get assets tax-free: You can leave an unlimited amount of assets to your spouse without having any of it eaten by taxes. Some financial planners, though, say this can create a future burden on your surviving children, who will probably have to pay more in estate taxes when your spouse dies and leaves them the money.
7. Talk your estate plans over with your children and family: It’s not a conversation that anyone will enjoy, but it’s important to discuss your estate planning with your heirs. This will help avoid disputes and confusion after your death.
SOURCES Bankrate.com, essortment.com, CNNMoney, FindLaw.com
Q&A: The basics of dividing up your assets
Q: Why do I need to make a will now?
A: Creating a will isn’t fun, but it is necessary. By creating a will, you can make sure that your assets are divided up properly among your survivors and favorite charities. Without a will, you lose all control over how your estate is divvied up after your death.
Q: What do I need to know before making a will?
A: Before drafting a will, tally up your assets. It’s important to accurately determine what you’ll be leaving behind. Assets include investments, insurance policies, real estate holdings, savings and retirement savings.
Q: What are the key questions I should ask myself about estate planning?
A: Who do you want to inherit your assets, and how much of these assets do you want them to get? Who do you want making medical decisions for you if you can no longer make them on your own? Who do you want handling your financial affairs if you are no longer able to do so?