Estate Planning in Midlife

Time to take a few basic estate planning steps.

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If you’ve accumulated a few dollars, you probably want to think about how best to distribute what you eventually will leave behind. But given the fact that you may well live another 30 or 40 years, there's no need to obsess about it. Chances are that you’ll want to fine-tune your estate plan down the line anyway.

Here are some steps you should take.

1. Write a Will

Start with the basics: Write a simple will. It’s not hard, and if you own the usual assets—house, car, bank accounts, mutual funds—you can likely feel comfortable doing it yourself, without a lawyer. (Check out Nolo’s online will or WillMaker Plus software; both offer a simple interview format and lots of plain-English help along the way.)

Your Children

If you have children under 18, be sure to name a personal guardian for them in your will. The person you name would raise the children if both you and the other parent were unavailable. That’s a very unlikely scenario, but worth addressing just in case. If your children ever needed a guardian, the local court would appoint the person you nominated in your will, absent a serious problem with that person. You can name different guardians for different children if you wish.

It’s easy to get stuck when you sit down to choose a guardian, and you and the other parent may disagree on who’s the best choice. But even if you’re not completely happy with your choice, pick someone. You can always change your mind later. For tips on making the process easier, see "Naming a Guardian for Your Child: Problems and Solutions."

Your Assets

In your will, you’ll also specify who is to inherit your assets. You can go the simple route—“everything to my spouse”—or divvy up items among your spouse, grown children, or charities. It’s entirely up to you, with one exception: If you’re married and leave nothing or very little to your spouse, he or she would probably have the right to claim some of your assets. It’s not an issue for most people.

2. Create Durable Powers of Attorney and a Living Will

You should definitely have these three documents, which will make things much easier for your family if you’re ever incapacitated by an accident or illness:

  • advance medical directive (living will)
  • durable power of attorney for health care
  • durable power of attorney for finances

A living will or advance directive is directed to your health care providers. (Despite the terminology, a living will is nothing like either a regular will used to leave property or a living trust used to avoid probate.) In it, you state your wishes for end-of-life care, in as much detail as you wish. You might simply say that you want everything necessary to relieve pain (palliative care or comfort care) but don’t want to receive extraordinary measures such as CPR in certain circumstances, or you might go into more detail that’s appropriate for a particular medical condition.

You use a durable power of attorney (DPOA) for health care to give someone you trust the authority to carry out the wishes in your advance directive, and to make other medical decisions if necessary. Depending on your state’s custom, the person you name is called a health care agent, attorney-in-fact for health care, health care proxy, or surrogate.

Finally, a durable power of attorney for finances works like a DPOA for health care, but gives someone authority over your assets. This can be a big benefit to family members—your spouse might need quick access to your checking account to pay the mortgage, for example. Without a DPOA for finances, your family would have to go to court and prove that you were incapacitated and ask that a conservator or guardian be appointed to handle your money.

You can use Quicken WillMaker Plus to make all these documents yourself; the program lets you produce documents tailored to your state’s laws.

3. Think About Avoiding Probate

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 inheritors after your death, without taking a circuitous, expensive and time-consuming detour through probate court. (For a primer on probate-avoidance techniques, see our articles on “How to Avoid Probate.”)

While you’re alive and competent, the trust has no effect, and you can revoke it or change its terms at any time. But after your death, or if you should become incapacitated, the person you chose to be your “successor trustee” takes control of trust property and transfers it according to the directions you left in the trust document. It’s quick and simple.

There are also other, even easier ways to avoid probate:

  • 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. No probate court proceedings will be necessary.
  • You can do the same thing, in almost all states, with securities, by adding a POD beneficiary to brokerage accounts.
  • Name beneficiaries for your retirement accounts such as IRAs and 401(k) plans. All you need to do is fill out the beneficiary form provided by your employer or the account custodian. If you want to change it later, just fill out and submit a new form.

4. Don’t Stress About Estate Tax

If you are wealthy enough to worry about federal estate tax—which means you expect to leave a taxable estate worth millions—get some expert advice about your options. Various kinds of trusts and gift-giving plans can reduce the amount your estate will have to pay.

When should you concern yourself about federal estate tax? Someone who dies in 2013 can leave $5.25 million without owing estate tax; married couples can exempt twice that amount. As a result, it’s estimated that about 99.7% of all 2013 estates will NOT owe federal tax. And because the exemption amount is indexed for inflation, it goes up each year. For deaths in 2014, the individual exemption is $5.34 million.

Some states also impose a separate state estate tax; in many of these states, smaller estates must pay tax. The state tax rates are much lower than the federal rate, however. For details, see State Estate Taxes.

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