Evaluating Your Personal Situation

The first step in creating a sound estate plan is to look realistically at your unique personal situation. You could start with a few questions: Are you married, partnered, or single? Do you have kids? Are you in a second or subsequent marriage or partnership? If so, do you have a blended family? Stepchildren? Do you have any children from prior relationships? Do you have grandchildren? Brothers and sisters? Other close family members? Who else do you care about and want to leave property to, beyond your close relatives? Are there any causes, charities, or other institutions to which you want to leave property?

For some, perhaps many people, these are not hard questions to answer; they don't raise difficulties or complexities. Others don't have it so easy. Thinking about family members can bring up worries about fights over property, or people you don't care for, or a number of awkward or painful situations that have fueled novels and movies for as long as they have existed.

Some people's situations have built-in complications. For example, one or both people in a second or subsequent marriage may have children from earlier relationships. I know several couples who have "his, hers, and our" kids. Some have "his, her, and our" property as well. Deciding how to divide property between the children may not be easy. Plus there are often other concerns. For instance, after a spouse dies, suppose the surviving spouse needs the deceased spouse's property to maintain his or her lifestyle. Perhaps the couple shared ownership of a house or condominium. Can the surviving spouse continue to live there, while preserving the deceased spouse's share for children of prior marriages? Estate planning for second or subsequent marriages is discussed in Chapter 2; the use of trusts to control property from such marriages is covered in Chapter 11.

Single people can have different, but equally important concerns. Single parents will naturally be concerned about who will raise their minor children if they cannot. (See Chapter 3.) Also, a single person may not be sure who to name as executor of his or her estate. (See Chapter 5.)

A therapy guide this book is not, so I won't launch into extended psychological discussions here about handling personal or family problems. What's important is that you reflect on and address any problems you want or need to deal with when you leave your property. One subject to ponder is whether there's anyone you want to discuss your plans with. If you're married or partnered, you'll almost certainly want to have an in-depth discussion with your mate. Beyond that, you have to decide what is wise. As you plan, do you want to discuss your planning with family members or other major beneficiaries? Sometimes, candid discussion can help you make the best decisions.

Choosing Your Beneficiaries

Your beneficiaries (W.C. Fields called them "bean-fisheries") are the people and organizations to which you leave your property. Distribution plans can range from the simple, such as leaving everything to your spouse, to far more complex arrangements, such as using trusts to leave property to many family members over generations, while also leaving property to friends and organizations at your death.

As I've said, you decide who gets your property. I've found that most people who start estate planning know who their beneficiaries will be. You're unlikely to need a lawyer's help here; the most a good one could do is help you clarify your own desires if you feel confused or conflicted, or perhaps point out some difficulties that might arise if you're considering a complex beneficiary plan. But most people face no serious problem choosing beneficiaries. The key components of a simple beneficiary situation are that your choices are clear, and that you leave your property outright, with no strings or controls attached.

(One exception might be property left to minors or young adults. See "Choosing How Your Children's Property Should Be Managed," in Chapter 3.)

Example 1: Francine and Phillip, a married couple, want to leave everything to each other. When the second spouse dies, all the property will be divided equally among their three children.

Example 2: Lily has a son, age nine, and a modest estate. She wants to leave most of her property to her son (in a trust), and the remainder to her friends Kelly and Gretchen.

Example 3: Angela has a substantial estate, and two children, ages 45 and 36. She wants to leave the bulk of her property equally to them, plus gifts of specific heirlooms to her sister and niece, and some cash to The Nature Society.

As I've said, couples in second, or subsequent, marriages may face more difficult beneficiary decisions. If one or both spouses have children from a prior marriage, conflicting desires can arise. Spouses may feel torn between leaving property to children from a prior marriage and aiding the current spouse, along with any children from the new marriage.

Example: Russell and Katy remarry in their 50s. Russell has two children, ages 25 and 28. Katy has a daughter who just turned 30. Russell's net worth is about $370,000; Katy's is about $560,000. They purchase a house together. Each contributes $150,000 for the down payment. Katy will pay roughly two-thirds of the mortgage payments and house expenses, because she earns considerably more than Russell.

Both spouses feel strongly that when one spouse dies, the other should be able to continue to live in the house. But they also want their individual shares of the house to go to their own children after they both die. Neither wants to create the possibility that the child or children of the spouse who lives the longest could somehow end up owning the entire house. The couple must agree on how the house will be divided when both die, including how Katy's extra contribution for payments and expenses will be apportioned. Also, they must devise a legal mechanism to accomplish their goals.

The usual legal device for handling this kind of second-marriage issue is a particular type of trust, called a "marital property control trust." (See Chapter 11.)

Providing for Young Children

Parents raising young children are usually quite clear that their major estate planning concern is providing for the minors if the parents suddenly die. (To remind you once more, a minor is any child under age 18.) "Providing" means deciding both who will raise the child and who will manage any money or property that the child legally owns. It may also include making plans to have sufficient property to leave the child, such as buying term life insurance. These concerns are discussed in depth in Chapter 3, but because they are so central to many people, I'll focus on a few important points here.

Custody of Your Children

If the other parent is involved and survives you, that parent will normally take custody of the children. On the other hand, if there is no other parent involved, in your will you can nominate a "personal guardian" who will care for your children. Your nomination is not binding on a court, however, because children are not property and cannot be willed to someone. But if custody is not contested, which is true for the great majority of cases where a child's parent or parents die, the judge will routinely confirm the expressed desires of the deceased parent.

Example: Myron and Kim are divorced but manage to cooperate without viciousness in raising their young son Lawrence. Each understands that if one dies before Lawrence turns 18, the other parent will have custody. Myron dies and Kim now has sole custody. In her will, she nominates her sister Polly to serve as Lawrence's guardian if she dies.

It's very difficult to prevent a parent who has been involved in raising a child from gaining legal custody if the custodial parent dies. But if the other parent has not been involved in raising the child, or you believe that parent is not fit to have custody, there are steps you can take to try to prevent that parent from gaining custody. (See "Naming Someone to Care for Young Children," in Chapter 3.)

Your Children's Property

Legally, minors cannot own any significant amount of property outright, more than $2,500 to $5,000 depending on the state. So you need to nominate an adult to supervise and manage any property owned by your child, including property you leave to the child, other inheritances, or the child's own earnings. There are several different legal devices you can use to leave property to your young children. These are discussed in Chapter 3.

Example: Jeannette is a single mother of five-year-old Sam. Sam's biological father has never had anything to do with Sam, neither parenting nor contributing money for child care. If she cannot raise her son, Jeannette wants her brother and his wife, not his biological father, to raise Sam. While Jeannette cannot guarantee this result, she can prepare a detailed written statement that explains why her brother would be the proper guardian. This statement could be very persuasive to a judge who must decide who would be the best person to raise Sam.

Planning for Incapacity

When you begin making plans to leave your property, there's one other vital issue to address: It's crucial that you make arrangements for the handling of your medical and financial affairs if you ever become incapacitated and can't take care of them yourself. As we've all learned from the news, wrenching family conflicts can arise if you haven't clearly specified your wishes. Creating binding legal documents that express your preferences is discussed in Chapter 4.

Transferring Your Property After You Die

To arrange for the transfer of your property to your beneficiaries after you die, you must use one or some combination of various legal devices. The two most popular are wills and living trusts. Deciding which transfer devices are best for you is the main technical aspect of basic estate planning, where law and legal documents come into play.

At this point, some estate planning books start insisting that you hire lawyers, warning of the disasters that will befall anyone so daring as to try to handle his or her own affairs without paying thousands of dollars for professional help. As I've already stressed, this is nonsense. Most readers will learn that by applying their own common sense, they can safely select which device or combination of devices is best for them, without hiring a lawyer.

Wills

A will, the simplest estate planning device to prepare, is a document that leaves some or all of your property to beneficiaries you choose. You can also use a will to name an adult guardian for your young children. Wills are discussed in detail in Chapter 5.

The principal drawback of a will is that it must normally go through probate, a complicated and expensive court proceeding. Probate rarely provides any real benefit to your beneficiaries, or, indeed, to anyone, except the lawyers involved. (See "Probate," in Chapter 5.)

Living Trusts

A living trust is a legal document similar to a will in function, except that no probate or other court proceedings are required to turn property over to beneficiaries. Because of this, living trusts are the most popular probate-avoidance device. (See Chapter 6.)

Other Ways to Transfer Property

There are a number of other ways to transfer property -- and avoid probate -- that can be useful in certain situations. These methods include:

• pay-on-death accounts for bank deposits or securities (stocks and bonds)
• transfer-on-death car/vehicle registration
• joint tenancy, a form of ownership where the surviving owner(s) automatically receive the interest of a deceased owner without probate, and
• tenancy by the entirety, a special version of joint tenancy specifically limited to married people.

These and other easy ways to avoid probate are discussed at greater length in Chapter 7.

Estate Taxes

Don't worry about estate taxes until you find out whether or not your estate will owe them. Most will not. An estate must be worth over $2 million (net) before it's liable for federal estate taxes. (For more, see "Federal Estate Tax Exemptions," in Chapter 9.) However, a couple with a combined estate worth $2 million or more may benefit by using what's called a tax-saving "AB trust." (See "The AB Trust," in Chapter 10.)

Making Changes

You are not locked into anything when you prepare your estate plan, including your basic documents, such as your will or living trust. With a couple of exceptions, you can change, amend, or revoke your documents any time you want to, for any reason -- or for no reason. (Joint tenancy is a special case; see "Joint Tenancy," in Chapter 7. Also, some types of estate tax-saving trusts must be irrevocable while you live. See "Other Tax-Saving Trusts," in Chapter 10.)

The only limitation is that you must be "competent" when you make a change. Legally, "competence" means having the mental capacity to make and understand decisions regarding your property. You have to be pretty far gone before you aren't legally competent to change your documents. For instance, forgetfulness, including not always remembering who people are, does not by itself establish mental incompetence.

More Estate Planning Resources From Nolo

At Nolo we are, of course, in favor of do-it-yourself law and avoiding lawyers whenever that's feasible. Below is a list of Nolo products that are useful for different aspects of estate planning and related matters.

• Plan Your Estate offers in-depth coverage of all significant elements of estate planning, from simple wills to complex tax-saving trusts, from funerals to family businesses.
• Quicken WillMaker Plus (software for Windows) enables you to prepare a comprehensive will and living trust (including a tax-saving "AB" trust) using your computer. It includes basic trusts for your minor children, allowing you to specify the age at which your children inherit property you leave them. The program also allows you to prepare a living will and name someone to be sure your wishes are followed, make a durable power of attorney for finances, create a document setting out your wishes for final arrangements, and prepare other useful legal forms.
• The Busy Family's Guide to Estate Planning: 10 Steps to Peace of Mind offers a ten-step, one-step-a-month plan that enables parents of minor children to accomplish what's crucial now, and to sensibly decide what can wait until later.
• The Nolo Now Will allows you to make your will online using an interactive program that does not require that you buy or download software. Nolo Now is available at nolonow.nolo.com.
• Nolo's Simple Will Book provides in-depth explanation of how to prepare a will that covers all normal needs, including basic trusts for your minor children. Will forms are available as tear-outs or on a CD-ROM included with the book.
• The Quick & Legal Will Book enables you to prepare a basic will efficiently.
• Make Your Own Living Trust provides a complete explanation of how to prepare a living trust. The book contains forms (tear-out and on CD-ROM) and information allowing you to create a living trust and, for married couples, a tax-saving "AB" trust.
• Special Needs Trusts: Protect Your Child's Financial Future gives you all the information you need to create a trust that provides for a disabled person without jeopardizing eligibility for government benefits.
• 8 Ways to Avoid Probate offers a thorough discussion of all the major ways to transfer property at death outside of a will.
• The Executor's Guide is a comprehensive handbook to help executors and trustees wind up a deceased person's affairs. It can also help you get your estate in shape for your own executor or trustee.
• Get It Together: Organize Your Records So Your Family Won't Have To provides a complete system you can use to organize your legal documents, financial records, and other important personal information for your executor and other loved ones.
• How to Probate an Estate in California shows Californians how to handle normal probate without an attorney.
• Living Wills & Powers of Attorney for California enables state residents to prepare health care and financial incapacity documents.
• Long-Term Care: How to Plan & Pay for It is a practical guide that provides all the information you need to help make the best arrangements for long-term care. It shows how to protect assets, arrange home health care, find nursing and non-nursing-home residences, evaluate nursing home insurance, and understand Medicare, Medicaid, and other benefit programs.
• Social Security, Medicare & Government Pensions shows you the way through the current maze of rights and benefits for those 55 and over, including Medicare, Medicaid, and Social Security retirement and disability benefits, as well as age-discrimination protections.
• Nolo's Guide to Social Security Disability helps you understand who is eligible for Social Security disability benefits and shows you how to get any benefits that are due to you.

You can order any of these books by visiting www.nolo.com. Once there, you'll also find free self-help information on a wide range of legal topics, including lots of material to help you plan your estate.

Introduction

Who needs to bother with estate planning? Here's the short answer:

• anyone who owns property that matters to them, and
• anyone with a minor child (under 18).

Estate planning isn't only for the rich, nor are there minimum property requirements, such as owning a home. Anything you care about -- from art works to gold earrings to items with little or no market value such as the old family rocking chair or loved photographs -- is significant enough to warrant at least basic estate planning.

The key is to ask yourself whether you own any property that you want to go to a specific person or organization when you die. If the answer is yes, you need to create a plan to make sure your desires will be carried out.

Example: Tracy told me she had no reason to worry about estate planning; she was a carpenter. I asked her if she were sure she owned nothing she cared about. She answered "No, nothing -- well, I guess my tools." When I pressed her a bit, she estimated they were worth, in total, over $35,000. I told her that if she did no planning before she died, her tools would be divided, according to state law, between members of her family. She exclaimed that wasn't what she wanted at all. Everyone knew she wanted her tools to go to her partner, Alex. I explained that she could guarantee her goal by preparing a very simple will. Later, having prepared a will, she told me, "You know, that's been nagging at me for years." I answered that she was definitely not alone.

If you have a minor child, or children, you automatically have estate planning concerns. Who will raise your child if you can't? More precisely, if you and the child's other parent, if there is one involved, die before your child is a legal adult (over 18), who will be the adult responsible for caring for the child? Legally, there are two different adult roles involved. The first is raising and nurturing the child -- having legal custody, and making day-to-day personal decisions on the child's behalf. The second adult role is managing any property owned by, or left for the use of, the child. By law, minors cannot control any significant amount of property they own. Commonly, parents name one adult to serve in both capacities.

Example: Felicity and Joe have two young children, ages one and three. They own an inexpensive car, personal and household belongings, and two life insurance policies for $100,000, one on each spouse's life. If one parent dies, the other one will, of course, carry on. But like many parents, the couple worries about what will happen if they die together. They discuss who should raise their children and manage the insurance money if they both die. They are pleased and relieved to agree that their wisest choice is Joe's sister Susan, who loves their kids and is securely married with one child of her own. Felicity and Joe discuss the matter with Susan, who agrees to serve as guardian if the need arises.

Joe and Felicity also are aware that present stability is no guarantee of lifetime security. If Susan's life drastically changes for the worse, Joe and Felicity will then make new plans for the care of their children.

Basic estate planning has just a few branches. I'll sketch them out here; these subjects are then covered in more depth in subsequent chapters.