Why have a Will? And the importance of Estate Planning

The knowledge that we will eventually die is one of the things that seems to distinguish humans from other living beings. At the same time, no one likes to dwell on the prospect of his or her own death.

But if you postpone planning for your departure from this life to the next; until it is too late, you run the risk that your intended beneficiaries -- those you love the most -- may not receive what you would want them to receive, whether due to extra administration costs, unnecessary taxes or squabbling among your heirs.

This is why estate planning is so important, no matter how small your estate may be. It allows you, while you are still living, to ensure that your property will go to the people you want, in the way you want, and when you want.  And it affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion and arguing.

All estate plans should include, at minimum, two important estate planning instruments: a durable power of attorney and a will. The first is for managing your property during your life, in case you are ever unable to do so yourself.
For most people, the durable power of attorney is the most important estate planning instrument available--even more useful than a will. A power of attorney allows a person you appoint -- your "attorney-in-fact" -- to act in your place for financial purposes when and if you ever become incapacitated.

Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts.  In such a case, the person you choose will be able to step in and take care of your financial affairs.

Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian.  If the courts are involved that court process takes time, costs money, and the judge may not choose the person you would prefer.  In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that he or she could implement immediately under a simple durable power of attorney.

The second is for the management and distribution of your property after death. In addition, more and more, Americans also are using revocable (or "living") trusts to avoid probate and to manage their estates both during their lives and after they're gone. Life is ever-changing and so are your estate-planning needs after you've created your will and an estate plan, you'll most likely need to revisit them at key points in your life as your circumstances change.

Here are some good reasons to revisit and change your will. You Get Married; Your new spouse doesn't automatically become your chief heir. Most states give a spouse one-third or one-half of an estate.  If you don't have any children, your parents or siblings would get the rest. To leave all your property to your spouse, you'll need a will. You cannot disinherit a spouse without his or her consent.

If you are living with someone but are not married and you want your significant other to inherit any of your property, you need a will.  If you become a parent; Obviously, the big question is how your children will be cared for if both you and your spouse die (this applies to single parent households as well). Now you definitely need a will to name a guardian for your children, as discussed earlier. 

Consider using trusts, perhaps in your will, to handle assets that would go to your children. Execute a durable power of attorney naming your spouse or someone else to act for you in financial matters when you can't. Durable power remains effective even if you become mentally unable to handle your own affairs.

Another reason the revisit and change your will is when you approach Middle Age.  Your assets are growing, so tax planning could save your heirs thousands in federal estate taxes. The time to act is when you and your spouse have a combined net worth, including house, retirement plans, and insurance proceeds, that approaches the amount vulnerable to the federal estate tax.

Here’s an example; you can give an unlimited amount to your spouse tax-free, by designating it in your will or by owning all assets jointly.  You should talk to an attorney, financial planner or tax person to help you with this. Update your will to reflect family births, deaths, separations, or divorces. Review guardian, trustee, and personal-representative appointments. Reevaluate the nature of specific gifts to people or groups. And recalculate how much life insurance you need.
Speaking of Divorce; review absolutely everything. The people in your life are changing. So must your estate plan.  You need a new will altogether because in most states a divorce automatically revokes the provisions of a will that apply to a former spouse. In some states a divorce revokes the entire will.

You'll want to set up trusts to control the assets you plan to leave your children. And revise any living trusts to remove your former spouse as a beneficiary or trustee.  Do likewise with a durable power of attorney or a living will. Plus, unless restricted by a divorce decree, change the beneficiaries on your life insurance, pensions, and IRA.
                                                                                                                                
Also when you Remarry, you and your new spouse may have to plan for families from prior marriages and for children you have together. Consider a prenuptial agreement, should you want to keep assets separate and nullify your inheritance rights to each other's estates.  You'll want to provide for your new spouse and still be certain your children are taken care of. To do this, talk to an estate-planning lawyer about a qualified terminable interest property trust -- QTIP, for short.

This trust can be set up in a will to give your spouse the income from the trust property and some rights to principal. But when he or she dies, the assets go to beneficiaries you have chosen.  When your Spouse Dies.  This loss can leave you emotionally vulnerable to financial mistakes. For at least several months, avoid selling your house or making other drastic changes.
 
Seek expert advice. There may be tax benefits to disclaiming some of your inheritance in favor of alternate beneficiaries, such as your children, if your spouse's estate is subject to the federal estate tax and you have enough assets of your own, including liquid assets.

 You'll need to get a new will and, if needed, a revocable living trust. Execute a new durable power of attorney and a living will (which expresses your wishes in case of an illness that leaves you permanently incapacitated). Put these in a safe place, and tell people who need to know where they are.                                                                         

And lastly for those of you who are planning on retiring in another state,  (or any time you move to a new state, for that matter), have your estate-planning documents and or your will reviewed in light of that state's laws and your current needs.  

As we mentioned earlier in our discussion, speak to a Financial Planner, an Attorney or a tax professional to get help in putting these things together for you.

These are matters you need to know.