According to some sources, up to 57 percent of American consumers do not have a will, and up to 69 percent of parents with children under the age of 18 do not have a will. Even though a large majority of Americans know and understand the importance of estate planning, many just do not follow through. So, which category are you going to fall into?
Although some people can get away with not having a will, most people should have some plan for how to avoid probate and how they want to have their property distributed after they die.
Many people get scared away from having a will because they think it will be too complicated or too expensive to hire a lawyer. This is simply not true anymore. In most situations, you can prepare your own will in the span of an afternoon by using a few simple documents. All you need to do is learn while you are going along and have some good material at your side in case you get stuck. One of the best cost-savings tips is to utilize one or more of the many forms available online.
The remaining estate planning tips that follow are categorized by age and marital status, but these are just fuzzy guidelines at best. There are many factors that can change your expected lifespan (smoking, dangerous jobs, riding motorcycles, skydiving), and you should adjust your plans accordingly.
Single Under the Age of 30
When you are in your twenties, you have probably not given much thought to what you want done with your possessions and property after you die. This is probably even more true if you recently graduated from college and the best part of your apartment is your home built entertainment center that consists of particle board and cinder blocks. In your situation, you can avoid making a will because you probably have a long time in which to live and acquire more assets.
However, if you were one of the lucky few to strike it rich while in college or before that, you should seriously consider drafting a will. After all, even if you don't smoke or ride motorcycles, accidents can still happen. With a will in place, you can be sure that your parents, siblings and significant other are taken care of. If you do not write a will, all your property will pass through intestacy laws (dying without a will) and will most likely end up with your parents.
Living with Your Girl/Boyfriend but not Married
If you have chosen to live with your girl or boyfriend and not get married, then you should make a will for sure. If you die without a will, your significant other may end up with nothing as all of your property will pass through the intestacy laws of your state (unless you happen to live in a state that allows civil unions or domestic partnerships), most likely to your parents or other surviving family members.
Another option that you have is to purchase and have title to big ticket items, such as homes and cars, in "joint tenancy with the right of survivorship" with your partner. If one of the joint tenants dies, then the other person takes ownership of the property in full.
You've Got Young Kids
Once you have kids, the best thing that you and your spouse can do to ensure their future is to write a will. The will does not have to be a fancy document that uses loopholes and trusts to avoid probate. Rather, it should be simple, leaving money and property to whomever you choose and also appointing a guardian for your children. If you do not write a will and you and your spouse die leaving young kids behind, a court will be in charge of appointing a legal guardian.
In addition, if you die without a will and leave both your spouse and young children behind, some of your property may pass to your children through the intestacy laws. While it is probably a good thing for your children's college to be paid for, your spouse may need to go to court in order to get control of the property to invest it wisely. This could result in wasted money on lawyers and court fees.
Lastly, once you have kids, it is probably about time to start considering and shopping around for life insurance. For young people that are in decent shape and don't smoke, term life insurance is relatively inexpensive and can mean the difference between having an easy life and struggling financially for your spouse and kids. Bargain shopping for life insurance has become quite easy on the internet, where you can compare multiple life insurance policies at once.
You've done it: Middle Age!
Once you hit that magic line where you can no longer consider yourself "young," you've crossed the line into "middle-age" and are probably already considering how best to draft your will. At this point, you can probably get a rough calculation of all of your assets in your head, but keep in mind that this will probably change in 5 or 10 years, and you will need to periodically revisit and update your will.
Here are some of the more popular options for estate planning.
Revocable Living Trusts
Revocable living trusts are a great idea because they allow you to pass your property to your loved ones without the hassles associated with probate court. These are pretty easy to set up and your bank or other financial institution is probably more than willing to help you with the process.
One of the best parts about a revocable living trust is that you can alter it however you wish while you are still alive. You can add money, take money out, name new beneficiaries (perhaps you have a "surprise child" when you're 50) and take out beneficiaries. And once you die, the property in the trust will most likely be transferred quickly and efficiently to the people that you chose.
Totten Trust (Payable-on-Death Accounts)
This is even easier than setting up a revocable living trust. If you have a bank account, you can simply turn it into a Totten trust by signing a form that your bank provides that designates the beneficiaries that you wish to receive the contents of the account. Totten trusts avoid probate and are very efficient at transferring property to your beneficiaries. In addition, Totten trusts can often be set up to pass securities (stocks and bonds) as well as bank accounts.
Steps to Reduce Estate Taxes
Only a few people will have enough property and money to worry about the federal estate taxes. As it stands in 2009, the estate taxes only apply if your estate is worth more than $3.5 million. If it happens that your estate will probably exceed the $3.5 million limit, then you should try to take steps to avoid these taxes as it can take a large chunk out of your estate, often taxing at a rate of 45% for everything over the limit. Here are some steps you can take to reduce or eliminate potential estate taxes:
Make sure to give your property away before you die. If you can give your property away before your death, it will be less likely that the federal government will take its bite out of your estate. Currently, you can give up to $13,000 per year per recipient without invoking the gift taxes. Although this may not seem like much, if you can give for ten years to ten people preceding your death, you could reduce your estate by up to $1.3 million.
Create an AB trust. Another way that you can protect your estate from federal estate taxes is to set up a bypass, or AB trust. If you and your spouse set up an AB trust, you leave your property to each other for life, and then to your children. If one of you dies, the surviving spouse can spend the income from the trust, and sometimes the principal. In addition, an AB trust can protect up to double the amount exempt from federal estate taxes. However, AB trusts can be expensive to set up.
Create a charitable trust. If you create a charitable trust, you are giving a gift of property to a charitable organization and getting some payments back in return. These trusts can sometimes save you on your federal estate taxes.
You are Ill or Elderly
If you are getting up there in years or have come down with an illness that you may not recover from, you need to be sure that you have a solid estate plan in place. You should first consider a living trust that will avoid any problems with probate. Next, see if your estate will be large enough to invoke the federal estate taxes. If so, you should take steps to minimize the amount that federal estate taxes will take.
After you have this all done, it is time to consider your own future. Although this can be a grim reminder of the things to come, it is very important that you lay out plans for your own healthcare if you degrade to a state where you are no longer able to manage your money or make choices that are wise for you.
If you do not appoint someone or lay out your plans on paper, it may come down to a judge appointing someone to make these important decisions for you. Having the state involved in such personal matters is something that no one ever wants to have happen.
By appointing someone in a living will to make these important decisions for you, you are creating something called a durable power of attorney. You will need this for both your healthcare as well as your financial matters. In your estate plan, you can choose the person that you wish to fill these roles and also dictate just what power the person will have over your assets and healthcare.
Get Legal Help Finding the Right Estate Plan for You
Probate laws are some of the oldest on the books. While the terminology and concepts may seem archaic, the good news is that you don't have to figure this all out on your own. There are estate planning attorneys who can help you map our your estate plan and draft important documents. Get started on planning your estate by contacting an experienced estate planning lawyer near you.