Your Money: Surprise! You do need estate planning

Jan. 1, 2001
Done properly, estate planning includes steps to be taken during your lifetime, not just what is to take place after your death.

Some people may believe that estate planning is only for the wealthy and primarily involves saving taxes. The truth is that estate planning should be part of the financial-planning process for every individual.

If you already have lost a very close family member - or know a family where one of the spouses or parents has died - you may have experienced the pain, turmoil, and conflict of the months following the death. My own experiences certainly have compelled me to get my plans in order, but I admit it took a tragedy to get me motivated. I hope you'll take the time to read this article and realize that it's never too early or too late to get started.

What exactly is estate planning?

Estate planning is the process of deciding how to pass along your assets to your family and other heirs, while minimizing the delays, conflicts, and costs of transfer. Done properly, estate planning includes steps to be taken during your lifetime, not just what is to take place after your death.

Now is a good time to set the groundwork for guaranteeing your family's financial security. The first step is knowing the facts and not falling into the trap of believing some of the common estate planning misconceptions listed below.

Myth: If I die without a will, my property will be distributed to my family as I intended.

Fact: If you die without a will or other valid transfer device, such as a living trust, your property will be distributed according to state laws. Typically, the state gives one-third to one-half of your after-tax estate to your surviving spouse and the remainder to the children.

If you have no surviving spouse or children, then your estate is distributed to your parents, brothers, sisters, and other blood relatives. If you have no living blood relatives, your estate goes to the state itself.

Myth: I can avoid all estate taxes if I leave everything to my spouse.

Fact: The unlimited marital deduction allows you to leave all of your assets to your spouse free of estate taxes, regardless of the size of your estate. However, when your spouse dies at a later date, he or she won't have the marital deduction to rely on. At that time, the amount of the estate that exceeds $675,000 (the individual estate tax exemption for 2000) will be subject to tax (starting at a minimum of 37 percent in federal tax), thus reducing the amount left to your heirs.

It may be wise to avoid the temptation to leave everything to your spouse. Instead, look for ways to take advantage of each spouse's estate-tax exemption to maximize family wealth.

Myth: Once I have a will, I can forget about it.

Fact: Even after your will has been drawn up, changes in tax laws, family circumstances, and other considerations may call for periodic reviews and possible revisions. For example, the value of your investments may have grown significantly over the years, and your estate plan may need to be revised to ensure maximum tax savings.

It is especially important to review your will if it was finalized before 1982. If your will was drawn up prior to 1982 and has not been updated since, you should have the documents reviewed, particularly if you want to ensure that your spouse has full use of the unlimited marital deduction now in effect.

Estate planning experts recommend that your will be reviewed at least every three years and whenever there is a substantial change in your family or financial situation.

What to do ...

One misconception about estate planning is that it's expensive. After all, it usually means hiring legal, financial-planning, and tax professionals. The question for most adults is: Do I seek professional advice and pay the relatively inexpensive costs to plan my estate? Or, do I leave it to my family to pay those professionals (possibly totaling much more) after I'm gone to "clean up" my unplanned estate, which almost inevitably will mean that they receive less?

Experts can help you plan in many ways, usually by accurately assessing what's in your estate. It's often more than you might think. After you've identified what you own, professionals can help you ensure that your plans are carried out and your responsibilities are met. Consider these strategies:

  • Draft a will. This flexible, changeable document gives explicit instructions on how your assets will be distributed, designates a guardian for any minor children you may have and provides for their care, leaves instructions about the operation of any family business you have, appoints an executor to guide the estate, and, generally, leaves no confusion about your preferences.
  • Create joint ownership of assets, usually between spouses. This step can greatly uncomplicate estate planning and often is as easy as titling assets on an "and/or" basis. However, there can be pitfalls in the use of joint ownership.
  • Make use of federal law which permits living individuals and couples to make contributions to charities or give gifts to relatives and friends without full tax consequences. These laws, which are always subject to change, are complex and one of the primary reasons why estate planning isn't a "do-it-yourself" project.
  • Develop a living trust. As the name suggests, this type of trust is created when you are alive. Any money or assets put in a living trust become the property of the trust, not you. You retain control of these assets, but, since they are the property of the trust, they are unaffected by your death. Living trusts can be attractive because, unlike a will, they can help you avoid probate and minimize estate taxes.

All approaches to estate planning - wills, trusts, gifts, and more - have one thing in common: they have to be implemented while you are alive. Life's two certainties - death and taxes - make estate planning essential for every adult who has any money, property, or assets.

Obviously, no amount of planning will help you avoid the inevitable. But it may relieve your worries and help your family avoid unnecessary taxes and expenses. Never underestimate the value that peace of mind can bring to your life.

Kathleen Adams, RDH, BS, is a financial adviser with Waddell and Reed ( She is currently trying to initiate money-management workshops for hygiene students and specializes in working with dental professionals. She can be reached at (800) 210-1357.