Making a Will When You're in Your Forties
(Page 2 of 2 of Do I Need More Than a Will?)
This is the time when most people consider estate planning in earnest. Keep in mind that your assets and what you want to do with them may change in 10 or 20 years -- be prepared to revisit and change your estate plan accordingly. First, create a will, and then consider some of these other planning options:
Revocable Living Trusts
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 without taking a circuitous and expensive detour through probate court.
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. (For more on living trusts, see Nolo's Living Trusts & Avoiding Probate area.)
You can make your own living trust using Nolo's Online Living Trust.
There are other, even easier ways to avoid probate for some types of accounts: 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.
Like payable-on-death accounts, in almost every state, you can use a "transfer-on-death" form to leave stocks, bonds, and retirement accounts outside of probate. In some states, you can even leave real estate or vehicles in this way, by completing a transfer-on-death (TOD) deed or title document.
Reducing Estate Taxes
Very few people have enough property to worry about federal estate taxes; for deaths in 2016, only estates worth more than $5.45 million are taxed. Married couples can combine their exemptions so that the last to die can leave $10.9 million without owing estate tax. These exemption amounts will rise with inflation. (See Nolo's article Estate Tax: Will Your Estate Have to Pay?.) If you do think your estate might owe tax, here are some ways to reduce the bill for your heirs:
Give your property away before death. 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 $14,000 per year 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 grandkids. 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 exempt from gift tax. (See Nolo's article Reduce Estate Tax by Making Gifts.)
Create a bypass trust. Another way to cut estate taxes is with trusts. Some couples can 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. (To learn more, see Nolo's article Tax-Saving AB Trusts.)
Create a charitable or other trust. 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. (For more information about trusts, see Nolo's article The Charitable Trust: Do Good and Get Tax Breaks.)
You're Over Fifty or Ill
Now is the time to take concrete steps to establish an estate plan. 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 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 health care 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 health care. 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. (To learn more, see Nolo's Financial Powers of Attorney area.)
If you are ready to dive into the world of estate planning, get Plan Your Estate, by Denis Clifford (Nolo). It covers everything from the basics of wills and living trusts to sophisticated tax-saving strategies.
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