Introduction 1
About This Book 1
A Special Note for Residents of Louisiana 2
Conventions Used in This Book 2
Foolish Assumptions 2
Icons Used In This Book 3
Beyond the Book 3
Where to Go from Here 4
Part 1: Getting Started With Your Will or Trust 5
Chapter 1: Ensuring That Your Last Wishes Are Honored 7
The Good, the Bad, and the Ugly: What Can Happen When You Don’t Plan Your Estate 8
Reaping the Benefits of Planning Your Estate 9
Planning for your care while you’re alive 9
Ensuring that your assets go where you want 10
Making things easier for your family 11
Looking Out for Common Pitfalls 12
Benefits and dangers of jointly titling real estate, property, and bank accounts 12
Benefits and dangers of having your assets “pay or transfer on death” 13
Benefits and dangers of life estates 14
Danger of subjecting an asset to Medicaid spend-down rules 15
Potential for increased tax exposure 17
Realizing What Happens If You Don’t Have an Estate Plan 17
Following the laws of intestate succession 18
Determining the custodian of your minor children 18
Creating Your Will or Trust 19
Deciding who should create it 20
Understanding the process 20
Thinking about your kids, money, life insurance, and more 22
Telling Your Family about Your Estate Plan 23
Chapter 2: Making Crucial Decisions 25
Going It Alone 25
Are you comfortable doing it yourself? 26
How complicated is your estate? 26
Choosing a Will or Trust for Your Estate 29
What a will can do for you 29
What a trust can do for you 30
You may benefit from having both 31
Going with a Pro 31
How lawyers and accountants can help 32
Do you save money in the long haul? 32
Working with a Professional 34
Hiring a lawyer 34
Meeting with your lawyer 35
Reviewing and executing the documents 35
Taking the final steps 36
Safeguarding Your Estate Plan 37
The problem of the disappearing document 37
Storing your will or trust 39
Registration of wills and trusts 39
Chapter 3: Gathering Pertinent Information 41
Asking Yourself Some Basic Questions 41
Identifying Your Assets 42
Real estate 44
Personal property 45
Titled personal property 46
Savings 46
Investments 46
Insurance policies and annuities 47
Retirement savings 47
Pensions 48
Considering Community and Jointly Owned Property 48
Valuing Your Property 50
Chapter 4: Planning Your Bequests 53
Calculating Your Assets 53
Determining Your Intended Heirs and Beneficiaries 54
Individuals 55
Institutions or charities 57
Other bequests 57
Thinking about Your Family Circumstances 57
Talking to your family 58
Jealousy and rivalry 59
Pressure from your family 59
Property That Pays or Transfers on Death 60
Estate Planning for Second Families 61
Giving your new spouse a life estate 62
Using trusts to hold your assets 63
More tools to consider 64
Estate Planning for Your Business 65
Inheritance of your sole proprietorship 67
Inheritance of your share of a business 68
Appointing the People Who Will Carry Out Your Estate Plans 68
Choosing your personal representative or trustee 69
Choosing a successor 71
Discussing your estate plan with your helpers 71
Finding Professionals to Assist You 72
Getting help from a lawyer 72
Hiring an accountant 73
Using professional trust services (institutional trustees) 73
Chapter 5: Providing for Your Children and Dependents 77
Choosing a Guardian 77
Making the decision 78
Choosing a guardian other than the noncustodial parent 79
Managing Your Child’s Assets 80
Providing for Your Child’s Needs 81
Your child’s education 81
Your child’s special needs 84
Your child’s financial stability 85
Chapter 6: Dipping into Your Pocket: The Tax Man (and Others) 87
Tallying Up Your Estate’s Tax Liabilities 88
Federal estate taxes — a moving target 88
The generation-skipping transfer tax 89
State estate taxes 90
Gift taxes 91
Minimizing Tax Costs and Liabilities 93
Leaving your estate to your spouse 94
Making gifts 95
Using trusts to avoid estate taxes 96
Creating a Family Limited Partnership 97
Seeing the Big Picture: Tax Avoidance Should Not Dictate Your Estate Plan 99
Paying Your Estate’s Debts 99
Medical costs and Medicaid reimbursements 101
Payment of bills, loans, and mortgages 103
Payment of funeral expenses 103
Covering Administration Costs 104
Court costs 104
Legal fees 104
Administrator’s fees 105
Trustee’s fees 106
Part 2: Everything You Need to Know About Wills 107
Chapter 7: Writing and Signing a Will 109
Deciding Whether a Will Serves Your Needs 110
Simplicity often leads you to a will 110
Assets not covered by a will 111
Exploring the Types of Wills 113
The statutory will 114
The handwritten (holographic) will 114
A will of your own 114
Other wills 115
Elements of a Will 117
Who you are 117
What are your assets 118
Who are your beneficiaries 119
What are your bequests 119
Reference to a tangible personal property memorandum 122
What happens with the residue (if any) of the estate 122
Payment of debts by the estate 123
Describing your funeral and burial wishes 123
Designating a personal representative 124
Designating a guardian for any minor children 124
Your signature 124
Executing a Valid Will 125
Choosing the right witnesses 125
Signing and executing your will 125
Chapter 8: Navigating the Land Mines 127
Identifying Common Land Mines 127
Disinheriting heirs, known and unknown 128
Avoiding invalidating part or all of your will 132
Lashing out from beyond 136
Handling simultaneous death of spouses 137
Realizing Why You Must Update Your Will 138
Your goals and wishes may change over time 138
Your assets may change over time 138
Family changes may invalidate your will 140
Family changes may dramatically alter who inherits under your will 140
Knowing What to Do If You Lose Your Will 143
Chapter 9: When You Already Have a Will 145
Reviewing and Updating Your Will 146
Changes in your family circumstances 146
Changes in your wishes 149
Changes in your financial situation 150
Changing Your Will 152
Adding to your will (amendment by codicil) 153
Executing a valid codicil 154
Revoking Your Will 154
How to revoke a will 155
What to do with a revoked will 155
Chapter 10: Estate Administration: What Happens in Probate Court 157
Navigating Probate Court 157
Discovering How Estate Size Affects Probate Procedures 158
Probate for small estates 159
Probate for larger estates 160
Understanding the Role of the Personal Representative 160
Giving notice to legal heirs 161
Collecting property for distribution 162
Notifying and paying creditors 162
Distributing bequests 163
Hiring a Lawyer 163
Overseeing Probate: The Judge 164
Avoiding Will Contests 165
Validity 166
Mental incapacity 167
Undue influence 168
Part 3: Trust me! How Trusts Work 171
Chapter 11: The Anatomy of a Trust 173
What’s a Trust and Why You Need One 173
Benefiting from Trusts 174
They’re flexible 174
You can provide for your incapacity 176
You can avoid taxes 176
You can avoid probate 177
A trust can help protect your privacy 178
Selecting a Trustee 178
Choosing Your Beneficiaries 181
Transferring Assets into Your Trust 181
Staying in control 182
Giving (or limiting) your trustee powers 182
Cancelling the trust 183
Distributing trust assets 183
Putting Your Trust into Effect 184
When the Trust Ends 186
Chapter 12: Dead or Alive: Picking Your Trust 187
Why So Many Choices? 187
The Revocable Living Trust 188
The benefits 189
Possible drawbacks 190
Choosing from Other Trusts 192
Trusts to avoid the tax man: Asset protection trusts 193
Trusts for people who can’t manage money: Spendthrift trusts 194
Trusts for doing good: Charitable trusts 195
Trusts to avoid gift taxes: Crummey trusts 196
Trusts for people who receive government benefits: Special needs trusts 197
Trusts to protect your estate plan if you predecease your spouse: Bypass trusts 198
Trusts where you control the trust assets 199
Trusts that own life insurance: Irrevocable life insurance trusts (ILITs) 202
Trusts for multiple generations: Dynasty trusts (generation-skipping trusts) 203
Trusts to postpone estate taxes: Qualified terminable interest property trusts (QTIPs) 204
Trusts for your pet 204
Deciding Which Trust Is Right for You 205
Serving your personal needs 205
Serving the needs of your family 206
Thinking about the tax man 207
Chapter 13: When You Already Have a Trust 209
Creating the Trust Isn’t the End of the Story 209
Transferring Assets into Your Trust 210
Real estate 210
Financial accounts 211
Other assets 212
Reviewing Your Trust 212
Does the trust still serve your needs? 213
Does the trust still fulfill your goals? 213
Is the trust adequately funded? 214
Amending Your Trust 214
Restating a Trust 216
Revoking a Trust 216
What Happens If You Die? 217
Can you avoid probate? 217
Should you also have a will? 218
Part 4: Carrying Out the Intent of Your Will and Trust 219
Chapter 14: Planning for Your Incapacity 221
Planning for Incapacity Has Many Benefits 221
You avoid guardianship and conservatorship proceedings 222
You get to choose who cares for you 222
You ensure that your wishes are followed 223
Drafting a Living Will 223
Discussing your wishes 225
Executing a living will 226
Distributing copies of your living will 227
Reviewing your living will 228
Looking into Other Advance Directives 228
Healthcare proxies 228
Your medical advocate 229
Special instructions: Your wishes for your care 231
Executing a Healthcare Proxy 234
Distributing copies of your healthcare proxy 234
Revoking a healthcare proxy 234
Designating Your Financial Powers of Attorney 235
Selecting power of attorney 236
Deciding between durable powers of attorney or periodic renewal 237
Power now or power later? 238
Drafting your durable power of attorney 239
Executing power of attorney 242
Revoking a power of attorney 242
Chapter 15: Those Cushy Retirement Funds 245
Exploring Retirement Savings Accounts 245
Retirement savings accounts available to anyone 247
Employment-based retirement savings accounts 248
Self-employed retirement savings accounts 249
Putting Off the Tax Man 252
Moving Assets from One Tax-Deferred Investment to Another 252
Designating a Beneficiary 253
Selecting your beneficiary 254
Changing your beneficiaries 256
Maintaining Control Over Your Accounts 256
The Tax Consequences of Putting Your Retirement Savings into Your Estate 257
Chapter 16: Life Insurance: Making Sure It Doesn’t Backfire 259
Taking a Look at the Different Types of Life Insurance 259
Term life 261
Whole life 261
Universal life 262
Variable life 262
Deciding Who Owns the Life Insurance 263
Ownership by a spouse 264
Ownership by a child or children 264
Ownership by a qualified plan 265
Ownership by a trust 265
Designating Beneficiaries for Your Insurance Policy 266
Spouse 267
Child or children 267
Another individual 268
Multiple beneficiaries 268
A trust 269
Your estate 269
Chapter 17: Your Castle: How It’s Owned Makes a Huge Difference 271
Ownership of Your Residence 272
Ownership by one person: Sole ownership 272
Ownership by two or more people 273
Life estates 274
Community property laws 275
Special issues for domestic partners 275
Should Ownership of Your Home Be Held by Your Trust? 276
The Drawbacks Of Adding Your Heirs to the Title 277
The cons outweigh the pros 277
Possible tax consequences 279
Possible Medicaid consequences 279
Leaving Real Property by Will or Trust 280
Remembering Other Properties 281
Vacation properties 281
Investment properties 282
Business real estate 282
Farmland 283
Part 5: The Part of Tens 285
Chapter 18: Ten Common Will Mistakes 287
Not Updating Your Will 287
Being Too Specific in Your Bequests 288
Forgetting to Address the Residue of Your Estate 290
Leaving Everything to Your Spouse 290
Leaving Nothing to Your Spouse 291
Including Items in Your Will That Pass Outside of Your Estate 291
Improper Witnessing of Your Will 292
Losing Your Will (or Making It Impossible to Find) 292
Forgetting to Leave Good Financial Records 293
Forgetting That Your Estate Needs Cash 293
Chapter 19: Ten Reasons to Have a Trust 295
You Avoid Probate 295
You’re Prepared for Incapacity 296
You Avoid a Will Contest 297
You Protect Your Heirs 298
You Can Protect Estate Assets from Creditors and Lawsuits 298
You Plan for Second (and Third, and Fourth) Marriages 299
You Plan for the Future of Your Business 299
You Can Transfer Real Property Located in Another State 300
You Have Continuity of Investments 300
You Avoid Taxes 301
Chapter 20: Ten Tax Traps to Avoid When Planning Your Estate 303
Not Planning Your Estate 303
Focusing Too Much on the Estate Tax 304
Assuming that the Estate Tax Will Not Change 305
Trying to Guess How the Estate Tax Will Change 306
Not Taking Advantage of Your Lifetime Gift Exclusion 307
Not Engaging in Business Succession Planning 307
Hiding Property Transfers and Gifts from the IRS 308
Having Your Estate Be the Beneficiary of Your Life Insurance 309
Not Preparing Your Estate to Pay Any Estate Tax Owed 310
Forgetting That Your Estate Will Grow Over Time 311
Part 6: Appendixes 313
Appendix A: State Signing Requirements 315
Alabama 316
Alaska 316
Arizona 316
Arkansas 317
California 318
Colorado 318
Connecticut 319
Delaware 319
Florida 320
Georgia 320
Hawaii 321
Idaho 321
Illinois 321
Indiana 322
Iowa 322
Kansas 323
Kentucky 323
Louisiana 324
Maine 325
Maryland 325
Massachusetts 326
Michigan 326
Minnesota 326
Mississippi 327
Missouri 327
Montana 328
Nebraska 328
Nevada 329
New Hampshire 329
New Jersey 330
New Mexico 330
New York 330
North Carolina 331
North Dakota 332
Ohio 332
Oklahoma 333
Oregon 333
Pennsylvania 334
Rhode Island 334
South Carolina 335
South Dakota 335
Tennessee 336
Texas 336
Utah 337
Vermont 337
Virginia 337
Washington 338
West Virginia 338
Wisconsin 339
Wyoming 340
Appendix B: State Inheritance Taxes 341
The Impact of Federal Estate Tax Reform 342
States That Don’t Tax Estates 342
States That Impose Only Inheritance Taxes 343
States That Impose Only Estate Taxes 343
States That Impose Both Estate and Inheritance Taxes 344
Appendix C: Estate Planning Worksheet 345
Estate Plan 345
Personal information 345
Goals and priorities 346
Family information 346
Assets 351
Debts 354
Bequests 355
Your advisors 356
Estate planning documents 356
Will 357
Personal representative 357
Guardian for minor children 358
Bequests 359
Estate taxes 360
Disinheritance 361
Trust provisions 361
Funeral and burial arrangements 362
Living Trust 363
Trustees and alternates 363
Property to transfer into trust 364
Disinheritance 365
Distribution of trust assets 365
Conditions on distribution 366
Special concerns 367
Durable Power of Attorney 367
Choice of agent 367
Powers granted 368
Preferences for the sale of property 368
Healthcare Proxy 368
Choice of medical advocate 369
Living Will 370
When should treatments cease 370
Treatments that may prolong life 371
Comfort and pain relief 371
Place of death 372
Index 373
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