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In the course of life, we learn so much from our mistakes as well as those of people we encounter. Let me share some important estate planning and estate-related lessons I have learned over the years.
Providing for your children
You love your children. You care about their financial and emotional well-being. And you’ve probably made some arrangements for life insurance to provide funds to care for them until they grow up, right? (If not, it’s time to start thinking about this.)
While you usually only think in terms of assets and liabilities when you think of an estate, your young or disabled children are also a very important part of your estate planning. Some issues to consider:
The importance of living trusts
This year, up to $5 million worth of assets per person ($10 million per couple) are exempt from federal estate taxes. Next year, it may drop to about $3.5 million per person. You’re not that rich, so why be concerned about a will and all that other stuff? You should because it could directly impact you and your loved ones.
A few years back, my friend’s mother died—without a will. She owed about half a million dollars of assets, and using probate attorneys would have cost my friend between 3 percent and 7 percent of the estate’s value. My friend was broke, but she couldn’t tap into the estate’s accounts, so she did most of the work herself. It took her over a year to get it all resolved and get the funds released. A living trust, naming her as a successor trustee, would have released all the assets instantly.
For another example, I look to a call I got recently from a client’s son. His dad is still alive, but, due to a stroke, he is in a state of dementia. Since his dad is not mentally competent for legal purposes, we couldn’t get a signed power of attorney from him. We had to wait for the court to name the son as his father’s conservator, and that took nine months. If you know you’re not well, or if you have the potential for strokes or other incapacitating illnesses, a will or living trust is even more important. It can help you get care more quickly—and perhaps even recover your own faculties.
When you set up a living trust, you don’t have to change the way you file tax returns or anything else. Just change the title of all your assets and beneficiaries of the insurance policies to the trust. You name yourself as trustee and name a successor trustee, or several, in case you die or become helpless. Although you can set things up yourself, it pays to work with an attorney who has expertise in the specific estate-planning issues that concern you.
Then, you can stop being concerned—and focus on enjoying life.
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
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