Rich or Not, an Estate Plan Is an Asset

Lynn Brenner | Family Finance

February 1, 2003

Why do we keep saying that you don't have to be rich to need an estate plan? Because money isn't the big issue. The main goal is to protect and help the people you love after you're dead. Beating the tax collector, although deeply satisfying, is a secondary consideration.

With that in mind, at a minimum your estate plan should include:

A will. This is the only way to be sure that all your assets are distributed as you wish. Yes, jointly owned assets, IRAs and life insurance go to the joint owner and to the designated beneficiary when you die whether or not you have a will. But what if you and that designated person die in a common accident?

Rockville Centre tax accountant Ed Slott recalls a childless couple in their 30s who jointly owned everything, including a thriving business: "Neither of them had a will. They died in a car crash. He survived her by two hours and by state law, his parents got everything. Her whole family was disinherited."

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Current copies of the beneficiary designation forms for your IRAs, 401(k) plans and other retirement accounts. It's these forms - not your will - that control what happens to all this money when you die. Yet most people mail back the only existing copies of these crucial forms without a second thought about making a duplicate. (Would you trust a mutual fund company or a stockbroker to keep the only copy of your will?) If necessary, file new forms and ask the IRA custodians and 401(k) administrator to send back acknowledged copies.

A durable power of attorney, a health-care proxy, and a living will. If you're alive but incapacitated, these documents are invaluable. A durable power of attorney lets someone else act for you - writing checks on your bank account while you're in a coma, for example. A health-care proxy gives someone else the legal right to make medical decisions on your behalf if you can't speak for yourself. A living will says what medical treatments you want and don't want.

You may also need a trust if you want to provide for a minor or disabled child or grandchild, if you're married to a non-U.S. citizen, or if you have children from a prior marriage. In the coming weeks, this column will address all these situations, along with other common estate-planning dilemmas, such as the pros and cons of telling your kids what you plan to leave them, and the smart and not-so-smart ways to transfer your IRAs to your heirs.

A master list of your assets and important papers, and where to find them. Make three copies - one for your spouse, one for your executor, and one for yourself (because this list is a helpful housekeeping record while you're alive).

It should cover all the items your survivors will need to locate. List all your bank, brokerage, and mutual fund accounts and insurance policies. Summarize your employee benefits. And say where you keep your safe deposit box key. Your family will be very grateful if you also include the names and telephone numbers of your lawyer, tax accountant, broker, insurance agent, financial planner, and someone in your employer's human resources department.

Estate Planning Glossary

Estate: The value of everything you own when you die, and I mean everything, down to the loose change on your bedside table. Your estate includes your bank and brokerage accounts, tax-sheltered retirement accounts, tax-free Roth IRAs, house, cars and life-insurance policies. "People often mistakenly assume life insurance is exempt from estate tax," says John J. Barnosky, senior partner at Farrell Fritz in Uniondale. Life insurance is income- tax-free to beneficiaries - but the value of any policy you own is part of your taxable estate.

Gift and Estate Tax: A tax on assets you transfer to another person. It's called a gift tax if you're alive, an estate tax if you're dead. There's no tax on anything you give or leave to your spouse, or on the first $1 million that you give or leave to others. You can give up to $11,000 per year to an unlimited number of people without reducing this $1-million exclusion.

Probate: The legal processing of your will. Probate costs include legal, filing and administrative fees. (They do not include estate taxes.) Assets that are jointly held with right of survivorship or that have named beneficiaries don't go through probate, nor do assets you've placed in a living trust. But they are all included in your taxable estate. Send questions about estate planning to Retire@Newsday.com, or write to Retirement Editor, Business Desk, Newsday, 235 Pinelawn Rd., Melville, NY 11747-4250. Include your full name and a phone number.