The Right Estate Plan for You

It may surprise you  to know that most Americans have not even created a simple will, let alone, a more comprehensive plan to avoid probate or save on estate taxes. As you would expect, we all have things we'd rather do and there is a certain amount of trepidation in confronting ones mortality.

The good news is that an estate planning or elder law attorney can create a will or a trust for you quickly, efficiently and economically. The first step is to make an appointment with us for a free initial consultation to learn what your needs are and an efficient manner of accomplishing them.

You're 25 and Single

What are you doing reading about estate planning? You're supposed to be dancing until dawn, but you might as well keep reading as this will not take long.

At your age, there's not much point in putting a lot of energy into estate planning. Unless your lifestyle is unusually risky or you have a serious illness, you are very unlikely to die for a long, long time.

If you're an uncommonly rich 25-year-old, though, write a will.  That way you can leave your possessions to any recipient you choose. If you don't write a will, whatever you leave behind will probably go to your parents. Think about it.

You're Paired Up, But Not Married

If you've got a life partner but no marriage certificate, a will is almost a must-have document. Without a will, state law will dictate where your property goes after your death, and unmarried partners get nothing. (The only exceptions are California (as of July 1, 2003) and Vermont, where surviving registered domestic partners can inherit just like surviving spouses.) Instead, your closest relatives will inherit everything.  Please note, under New Jersey's domestic partnership law, surviving domestic partners do not inherit under the interstate rules (i.e., rules for people who die without a will).  However, transfers to a surviving domestic partner from the deceased partner's estate are exempt from New Jersey inheritance tax (this is a significant benefit as the inheritance tax would otherwise begin at 15% without any exemption.

A frequent option/alternative for unmarried couples is joint ownership of real estate and other significant assets, such as  cars and boats.  When property is held together in "joint tenancy" with right of survivorship, then, when one of you dies, the survivor will automatically own 100% of the property.

You Have Young Children

Having children complicates life -- but then, you already know that. Estate planning is no exception.  Here's what to think about.

First, write a will. Nothing fancy, just a document that leaves your property to whomever you choose and names a guardian for your children. The guardian will take over if both you and the other parent are unavailable. That's an unlikely situation, but one that's worth addressing just in case. If you fail to name a guardian, a court will appoint someone, possibly one of your parents.

The other big reason to write a will is that if you don't, some of your property may go not to your spouse, but directly to your children. The problem with the children inheriting directly is that the surviving parent may need to get court permission to spend or invest the money -- a waste of time and money in most families.

Second, think about buying life insurance to replace your earnings if you are not around to support your family . Term life insurance is relatively cheap, especially if you're young and don't smoke. You can shop for the best bargain online, by consulting free services that compare the rates of lots of companies.

You're Middle-Aged and Know the Names of at Least Three Mutual Funds

If you've made it to a comfortable time in life -- you've accumulated some material wealth and enough wisdom to know that other things matter, too -- you will probably want to take some time to reflect on what you will eventually leave behind.

But given that you may well live another 30 or 40 years, there is no need to obsess about it. Chances are your conclusions will be different in ten or 20 years, and your estate plan will change accordingly.

To save your family the cost (and hassles) of probate court proceedings after your death, think about creating a revocable living trust. It's hardly more trouble than writing a will, and lets everything go directly to your heirs after your death with minimal probate court involvement.

While you're alive, the trust has no effect, and you can revoke it or change its terms at any time. But after your death, trust property can be transferred quickly, according to the directions you left in the trust document.

There are other, even easier ways to avoid probate: You can turn any bank account into a "payable-on-death" account simply by signing a form (the bank will supply it) and naming someone to inherit whatever funds are in the account at your death. You can do the same thing, in almost every state, with securities.

If you have enough property to worry about federal estate taxes, think about tax avoidance as well. Currently, estates worth more than $1.5 million are taxed; that amount is scheduled to temporarily increase in future years. The estate tax is slated to be phased out in 2010 for one year only but comes back with a vengeance in 2011.  In 2011, the estate tax exemption will be reduced to $1 million (i.e., $500,000 less than today). If estate tax does take a bite, it can be a big one; the marginal rate tops out at 48% for the largest estates.

One way to reduce these taxes is to give away property before your death. After all, if you don't own it, it can't be taxed. Gifts larger than $11,000 per year ($22,000 if the gift is from a married couple) per recipient are subject to gift tax, at the same rate as estate tax. Still, an annual gift-giving plan can reduce the size of even a big estate, especially if you have a covey of kids and grand kids. Gifts to your spouse (as long as he or she is a U.S. citizen), direct payment of tuition or medical bills and gifts to a tax-exempt organization are all exempt from gift tax.

Another way to cut taxes is with trusts. Many older couples use an AB trust to leave property to each other for life, and then to their children. The surviving spouse can spend trust income and, in some circumstances, principal. An AB trust can shield up to twice the exempt amount from estate tax.

Charitable trusts, which involve making a gift to a charity and getting some payments back, can also save on both estate and income tax. There are many other complex trusts; learn about them on your own and then have an experienced estate planning lawyer draw up the documents you want.

You're Elderly or Ill

Take some time now to take concrete steps to establish an estate plan and you will receive piece of mind. First, the basics: Consider a probate-avoidance living trust and, if you're concerned about estate taxes, a tax-saving trust. (These devices are discussed just above.) Write a will, or update an old one.

Then, although no one wants to do it, take a minute to think about the possibility that at some time, you might become unable to handle day-to-day financial matters or make healthcare decisions. If you don't do anything to prepare for this unpleasant possibility, a judge may have to appoint someone to make these decisions for you. No one wants a court's intervention in such personal matters, but someone must have legal authority to act on your behalf.

You can choose that person yourself, and give him or her legal authority to act for you, by creating documents called durable powers of attorney. You'll need one for your financial matters and one for healthcare. You choose someone to act for you (called your agent or attorney-in-fact) and spell out his or her authority. You can even state that the document won't have any effect unless and until you become incapacitated. Once signed and notarized, it's legally valid, and your mind can be at ease.