1) Changes
A new year brings
change with it. The most important changes are the changes in your family. If
your list of resolutions also includes the words New Baby or Wedding on it, then
it is time to start “estate planning.” Unlike what many people think, an estate
plan is not just a will and a trust. Estate planning is not only about planning
for after life, but also planning for incapacity.
Make sure that the PODs
(Payable on Death Beneficiaries) in your accounts are up to date. PODs are the
people that will receive the funds in those accounts if you pass away. Accounts
that commonly have PODs are bank accounts, IRAs, 401k, and life insurance
policies. These accounts do not go through probate. Even if you update your
will and name your new child/spouse in it, if you do not update the POD on your
accounts, the named POD will be able to cash that account and your child/spouse
will not receive the funds.
Conversely, in some
accounts, like IRAs, your spouse is by law the default beneficiary, and he or
she must consent in order to name someone else. This means that if you just got
married, but still want your parents or children to be the beneficiaries of one
of these protected accounts, your new spouse must consent. No… divorce is not
the answer, estate planning is still cheaper.
Regarding the new
babies, revise your documents (or draft them) to include a designated guardian
for your children in case you are ever missing. Yes, grandmothers fight over
them (especially mothers-in-law).
Finally, draft/update advanced
directives to plan for incapacity. Advanced directives are documents that
describe your wishes for when you are still alive, but incapacitated. Advance
directives include living wills, health care surrogates, guardian designations,
and powers of attorney. Make sure the person in charge of pulling the plug is
not your ex.
The second type of
change is changes in the law. This is the boring part; but don’t worry I’ll try
to keep it short; I know there is a reason you didn’t want to go to law school.
In the last couple of years Federal Estate and Gift Tax Laws have changed every
single year. The Federal Estate, Gift, and Generation Skipping Tax exemptions,
as well as their respective rates, have varied tremendously. Most wills
calculate distributions to beneficiaries using formulas designed to take
advantage of the maximum allowable tax exemption. Changes in these laws could
make these formulas produce undesired results. Unfortunately, the tax
exemptions, deductions, and rates are too complicated to include in this article,
but they sure are important to keep up to date in your estate plan.
State laws change often
too. In the case of Florida, laws regulating Durable Powers of Attorney changed
last year. This means that if you have a Durable Power of Attorney it is
probably invalid now. Also be careful with generic forms found online or in
office supply stores, these are usually designed by national companies that
need to keep up with changes in 50 states at once.
2) Time Sensitive Tax
Savings
There are tax-saving
strategies, like contributions to your IRA, that can be taken advantage of, but
only until April 15 (April 17 for the year 2012). An IRA (Individual Retirement
Account) is a resource for planning for retirement. There are different types
of IRAs, you may have heard the terms Traditional and Roth. Which one is best
for you will depend on different factors which are outside the scope of this
article. But their common purpose is saving for retirement. As an incentive for
saving for your retirement, the IRS will allow you to deduct the amount of your
contribution to the IRA from your income for income tax purposes.
3) Why not?
Why not start your
estate plan already if you don’t have one. It is never too early to start your
estate plan. There is actually an incentive to start it as soon as possible. The
point of an estate plan is to plan for incapacity or when no longer here. If you
knew when this will happen, there would be no need to plan.
If budget is the
problem, you can start your estate plan little by little. If you have children
first draft your will and trusts, you can name their future guardian in these.
In addition, some
attorneys will prepare your advance directives, like living will, health care
surrogate, etc., free or for a reduced price when you prepare your will and
trusts with them.
Finally, be careful
with generic forms found online or in office supply stores. Some states, like
Florida and other Sun Belt states, are extremely conservative regarding will formalities.
This is due to the large number of people that move to these states to retire.
Simple things, like a second witness signing the will in a different room from
the first witness, can render your will invalid. (This is from an actual case,
see In Re Groffman, [1969] 2 All E.R. 108).
No comments:
Post a Comment