No matter your net worth, it's important to have a basic estate plan
a plan ensures that your family and financial goals are met after you
An estate plan has several elements.
include: a will; assignment of power of attorney; and a living will
or health-care proxy (medical power of attorney). For some people, a
trust may also make sense. When putting together a plan, you must be
mindful of both federal and state laws governing estates.
Taking inventory of your assets is a good place to start.
assets include your investments, retirement
insurance policies, and real
or business interests. Ask yourself three questions: Whom do you want
to inherit your assets? Whom do you want handling your financial
affairs if you're ever incapacitated? Whom do you want making medical
decisions for you if you become unable to make them for yourself?
Everybody needs a will.
will tells the world exactly where you want your assets distributed
when you die. It's also the best place to name guardians for your
children. Dying without a will - also known as dying "intestate"
- can be costly to your heirs and leaves you no say over who gets
your assets. Even if you have a trust, you still need a will to take
care of any holdings outside of that trust when you die.
Trusts aren't just for the wealthy.
are legal mechanisms that let you put conditions on how and when your
assets will be distributed upon your death. They also allow you to
reduce your estate and gift taxes and to distribute assets to your
heirs without the cost, delay and publicity of probate court, which
administers wills. Some also offer greater protection of your assets
from creditors and lawsuits.
Discussing your estate plans with your heirs may prevent disputes or
can be a loaded issue. By being clear about your intentions, you help
dispel potential conflicts after you're gone.
The federal estate tax exemption - the amount you may leave to heirs
free of federal tax - has been rising gradually and is $3.5 million
the top estate tax rate is coming down. The estate tax is scheduled
to phase out completely by 2010, but only for a year. Unless Congress
passes new laws between now and then, the tax will be reinstated in
2011 and you will only be allowed to leave your heirs $1 million
tax-free at that time.
You may leave an unlimited amount of money to your spouse tax-free,
but this isn't always the best tactic.
leaving all your assets to your spouse, you don't use your estate tax
exemption and instead increase your surviving spouse's taxable
estate. That means your children are likely to pay more in estate
taxes if your spouse leaves them the money when he or she dies. Plus,
it defers the tough decisions about the distribution of your assets
until your spouse's death.
There are two easy ways to give gifts tax-free and reduce your
may give up to $13,000 a year to an individual (or $26,000 if you're
married and giving the gift with your spouse). You may also pay an
unlimited amount of medical and education bills for someone if you
pay the expenses directly to the institutions where they were
There are ways to give charitable gifts that keep on giving.
you donate to a charitable gift fund or community foundation, your
investment grows tax-free and you can select the charities to which
contributions are given both before and after you die.