Written by Eva Rosenberg on July 9, 2012 in Tax  |   No comments

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:

1. Who will take raise your children if you and your spouse cannot? Think carefully. If you don’t make provisions, your children may be sent to the closest relative—or to a foster home. Good friends who would make excellent substitute parents will have to fight expensive battles to get your children if you don’t spell out your intentions.
2. If you’ve left money or insurance policies to your minor children, you probably think you have provided for them. Maybe not. One woman told me that since her husband’s death from cancer, she’s been forced to report to the courts every few months. Why? Because the policies, the will, and so on left the money directly to the children instead of to a trust for the children. She’s since learned that a good estate attorney would have structured her husband’s will (he knew he was dying and tried to make plans) to create a trust to hold all the children’s inheritances when he died. The wife would have been named trustee and been put in charge of the trust’s finances to be spent for the care and education of the children. In this case, there would have been no need to report to the court.

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.

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:

1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

• Credit RSS Feed
• Family Money RSS Feed
• Insurance RSS Feed
• Newsletter RSS Feed
• Real Estate RSS Feed
• Retirement RSS Feed
• Small Business RSS Feed
• Tax RSS Feed
• Video Contest RSS Feed