The Complete Guide to Planning Your Estate: A Step-by-Step Plan to Protect Your Assets, Limit Your Taxes, and Ensure Your Wishes are Fulfilled

The Complete Guide to Planning Your Estate

A Step-By-Step Plan to Protect Your Assets, Limit Your Taxes, and Ensure Your Wishes Are Fulfilled

By Sandy Baker

The Complete Guide to Planning Your Estate: A Step-by-Step Plan to Protect Your Assets, Limit Your Taxes, and Ensure Your Wishes Are Fulfilled

Copyright © 2007 by Atlantic Publishing Group, Inc.

1405 SW 6th Ave. • Ocala, Florida 34471 • 800-814-1132 • 352-622-1875–Fax

Web site: www.atlantic-pub.com • E-mail: [email protected]

SAN Number: 268-1250

This publication is protected under the US Copyright Act of 1976 and all other applicable international, federal, state and local laws, and all rights are reserved, including resale rights: you are not allowed to give or sell this ebook to anyone else. If you received this publication from anyone other than an authorized seller you have received a pirated copy. Please contact us via e-mail at [email protected] and notify us of the situation.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be sent to Atlantic Publishing Group, Inc., 1405 SW 6th Ave., Ocala, Florida 34471.

ISBN-13: 978-1-60138-049-4

ISBN-10: 1-60138-049-6

Library of Congress Cataloging-in-Publication Data

Baker, Sandy Ann, 1976-

The complete guide to planning your estate : a step-by-step plan to protect your assets, limit your taxes, and ensure your wishes are fulfilled / by Sandy Baker.

p. cm.

Includes bibliographical references.

ISBN-13: 978-1-60138-049-4 (alk. paper)

ISBN-10: 1-60138-049-6 (alk. paper)

1. Estate planning--United States. 2. Estates (Law)--United States. I. Title.

KF750.Z9B35 2007

346.7305’2--dc22

2007022410

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or Web site is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Web site may provide or recommendations it may make. Further, readers should be aware that Internet Web sites listed in this work may have changed or disappeared between when this work was written and when it is read.

Table of Contents

Foreword

Introduction

Chapter 1

An Introduction to Estate Planning

Chapter 2

What Are You Worth?

Chapter 3

Your Will: The Definition of Your Estate plan

Chapter 4

Laws That You Have to Deal With

Chapter 5

Probate: Avoid It At All Costs

Chapter 6

Will Substitutions That Save Your Estate

Chapter 7

Trusts: Trusting and Your Estate

Chapter 8

Taxes: Estate Tax And Other Taxes

Chapter 9

Lowering Your Federal Estate Taxes

Chapter 10

A Comprehensive Estate Plan: Putting Insurance Pieces Together

Chapter 11

Planning For Long-Term Care

Chapter 12

Your Estate Plan and Your Retirement Money

Chapter 13

What Happens When...?

Chapter 14

Putting It All Together

Conclusion

Appendix

Resources

Author Biography and Dedication

Glossary

Foreword

I love my family, and I do not want to leave them with a mess. Most people wish that there was a way to prevent burdening their loved ones when they die, and yet creating a burden is exactly what they do. If you do not prepare a well thought out estate plan in case of incapacity or death, the state where you live has one already set up for you. But unlike a professionally prepared plan, this one will be the most expensive, time consuming, difficult, public, and aggravating one that exists.

Under this plan, your county probate court judge will appoint an administrator (usually a probate attorney, maybe even a campaign contributor for his re-election) to contact your relatives and creditors to settle your estate. This process could take between one and three years, sometimes more, cost between five and ten percent of your estate, and all the information you thought was private will now be public record. There will even be an additional charge against your estate every time the probate attorney talks on the telephone about your estate or pays bills to one of your creditors with your money.

If you are alive and physically or mentally incapacitated, the same probate judge will appoint someone (again, it could be that probate attorney) to act as your legal guardian to make sure your bills get paid, you receive proper medical treatment, and your physical needs for food, clothing, and shelter are met. Every time that attorney does anything for you, he or she will charge you a bill at his or her typical hourly rate of between $100 and $500, easily resulting in a cost of up to and over $20,000 per year while the guardianship is in effect. This is in addition to your bills that will be paid for with your money. The trouble does not stop there, however, because if you later regain your capacity, you cannot simply walk into the probate judge’s office and declare that you are ready to take over again. Instead, you must formally petition the probate court to prove your legal competence to remove the legal guardianship. However, just because you think you are competent does not necessarily mean that the probate judge will agree. The probate judge will most likely err on the side of caution and keep the guardianship in effect indefinitely.

The attorney who represents the guardianship will not be inclined to lose those legal fees and will probably petition the probate court to keep the guardianship in effect. That attorney will tell you it is in your best interest, but instead it will be in the attorney’s best interest. So now you will have to hire a second attorney to petition the probate court to remove the guardianship. Both attorneys will be paid for with your money.

This book goes though the best methods to avoid these messes and make sure you have an estate plan that will serve you and your loved ones’ needs. It explains, in simple and easy to understand terms, topics including wills, trusts, durable powers of attorney, living wills, probate by-pass methods, who the professionals are, and how they can help you. It is a great read, and I recommend it to anyone who wants to avoid a mess.

David J. Bernstein

Attorney at Law

www.estatefacts.com

Table of Contents

Introduction

Your estate is what you have worked to develop. You deserve to make decisions about your property and your money.

Using this book as a guide, with its easy to understand language, you will learn how to plan your estate legally.

With a will in hand and a plan for your estate, you can be assured that your wishes will be met and that you have taken the steps to:

• Protect your loved ones from taxes that can literally take most of your estate.

• Give your favorite charities the funds you want them to have.

• Save your survivors from making decisions about your estate.

• Provide for your loved ones.

An estimated 60 percent of people die without a will or any type of estate plan. That means that the government settles the estate, and if there are no clearly defined heirs, the state takes everything.

Your estate plan is a living document that changes with you. As your life moves forward, your estate plan can provide for life changes. By getting your wishes down on paper now, you take care of everyone who is important to you no matter what happens so that they have the funds they need to live without you.

This simple, easy to follow book will help you to understand each step of the estate process and allow you to protect those you love.

Table of Contents

Chapter 1

An Introduction to Estate Planning

Why Do All This Work?

If you want to decide what happens to your money and possessions, you need to do it through your estate plan.

When you do plan your estate, you can do several important things:

1. Because of a rising divorce rate, the normal family today includes numbers of people whom the government will not take into consideration when examining your estate.

2. You cut or eliminate the amount the government takes from your loved ones.

3. You protect your business. An estate plan can help the business stay open and thriving.

What Is an Estate?

Often, people think they do not have enough of an estate to have to worry about planning. But if you have a home, credit card debt, or heirs, you need to plan your estate. Your estate consists of everything that belongs to you. Here are some items that come into play when planning your estate:

• Actual money: This includes cash that you may have, checking, and savings accounts.

• Certificates of deposit.

• Your portfolio: stocks, mutual funds, and bonds.

• Your retirement funds: pension funds, 401(k), your IRAs, and any other money that has been reserved for retirement.

• Your house, your vehicles, and all property inside your home, including clothing, furniture, appliances, your jewelry, and other valuables.

• Insurance products: life insurance, especially.

• Your business: any funds or ownership of your business.

• Annuities that you may have coming to you.

• Anything else that you have that you consider valuable either sentimentally or monetarily.

One important note is that your estate planning will likely include both positive and negative balance amounts. For example, it will include all the items listed above as positive balances, provided they do not carry a loan or a negative balance. Your mortgage on your home may be a negative balance because you still owe money on it. In addition to these things, money that you owe others, taxes that you owe, and any credit that you have outstanding is also a negative balance.

Even though these things may carry a negative balance, they too need to be planned into your estate. It is essential to know this information to figure out your estate’s actual worth.

Case Study: Janice Engelberth

What is the most important thing for others to consider, based on your experience, when it comes to planning an estate?

Learn about the taxes that are due for the estate and when they are due.

My husband’s health did not allow him to sign documents, and even though I had the power of attorney, I could not sign his name on real estate documents. I made sure there was one bank account with the minimum amount kept in it for cashing government checks, and I found that process to be a challenge too.

If one is able, prepay funeral expenses so that this burden does not happen later.

I also found that it was important to make sure that all people involved have a medical directive as this could be a potential problem when something happens. We established all these things in an effort to make the process after death easier.

When you completed the process, did you feel secure?

Yes, I did feel like I was in a better place for whatever comes. It was worth the effort to know that everything was planned. We worked through a lawyer who specialized in trusts. Before, we had almost all our holdings in joint ownership accounts. In 2000 each of us had a trust. In 2006 it was revised because of health issues. We wanted to sell real estate, and he could not write his name to sign the documents. If we had not had the trust, our four children would have had to sell property quickly to pay the almost $250,000 in taxes that would be due.

Janice Engelberth

Warsaw, IN

What Is Your Estate Worth?

It is simple math to figure out what your estate is worth. Start by adding all the positive items together for the value of your assets.

Next, subtract the amount of money that you owe from this asset balance. The balance is the value of your assets.

The value of your estate will change over time.

If you own a business, for example, you will need to know the value of the business itself, all equipment, and the value of your stock.

Any money or property that will be yours in the future may need to be included in your estate as well.

What Goes into Estate Planning?

Property Types

There are several different types of property that should be included in your estate. The most common is that of real property, including any type of real estate that you may own, such as a timeshare and any improvements you have made to the land you own.

Personal property is broken down into two types. One is tangible personal property, which is any type of property that you can touch. Examples are clothing and furniture.

The other type of personal property is intangible, including your money, your bank accounts, and your stock certificates. It includes anything that is financially oriented that belongs to you.

Property Interest: Defined

The two types of property interest include legal interest and beneficial interest.

Legal interest means that you only have a legal right to the property, but you do not have the ability to use it. One example is a trust. If you are the trustee of property that belongs to someone else, you get to make decisions about how that property is used, but you do not get to use those funds or property for your own benefit. As a trustee, you make decisions about the money but cannot touch the funds for your own use.

The second type of property interest is beneficial interest. Here, you do have the benefit from the property, meaning that you do have use of and the right to the property. There are two additional types of interest that are defined as beneficial:

•Present interest: In this type of interest, you have the right to use the interest right now, as you see fit. Here, there is no wait to get the benefits from your property.

•Future interest: As the name describes, you have the benefit coming to you in the future. This type of interest can be further broken down:

• Vested interest is the benefit that you get in future interest that allows you to do anything you want with no strings attached.

• Contingent interest is the benefit that you will get only if you abide by the rules set forth.

Who Will Help You Plan Your Estate

While you can do all your estate planning yourself, it is better to use some key people along the way to help you to make the most of estate planning. Each one plays their own role in helping you to get your estate set up with a plan for its future.

You will want to work with four key individuals during this process.

1.) Estate Planning Attorney: You will need a good estate planning attorney or an attorney that you know and trust. Having someone whose specialty is estate planning makes the best sense.

2.) Accountant: You need an accountant to help you determine value and manage taxes on your estate, one who can help you make the right decisions now to avoid costly taxes later on.

3.) Financial Planner: A financial planner, who helps you make decisions regarding investments and other finances, will also be needed. You may consult with a financial planner for guidance only or turn over investment and management of your estate.

4.) Insurance Agent: You need the help of an insurance agent because you will want to give your family protection. The obvious benefit here is life insurance, but you should also consider disability insurance as well as liability insurance.

A Closer Look: The Attorney

An attorney should be able to look at your situation and prepare for possible scenarios. What if you die before you get married but you still want all your belongings to go to your fiancé? What if your heir dies before you do? All these (and countless more) situations are something that your attorney needs to plan out for you.

Ask your attorney to provide you with the legal advice necessary in handling trusts, wills, your business, and every aspect of your estate planning.

What to Look for in an Attorney

You should look for these qualities in the attorney you plan to hire:

• You should look for an attorney that specializes in estate planning. What experience does he or she have that will serve your needs? Ask about the person’s legal experience in your area and with people whose financial situation is similar to yours. What amount of dedication and time can your attorney give you?

• Can you trust the attorney? You want someone that you feel has your best interests at heart and who is working for you. You also should like them because you will be dealing with them for some time to come.

A Closer Look: The Financial Planner

If you think that financial planners have the sole job of helping people make money, you are wrong. The financial planner has the job of helping you make your financial dreams come true and to give you the advice that you need to manage your funds over the course of your lifetime. With a financial planner, you will be able to provide for your loved ones when you are gone.

It is important to determine the role of your planner. Some people want to find someone they can trust, give them a fixed amount of money per month to manage investments, and watch their numbers rise. Others want only to be told how to handle their funds, as in which investments are a good choice and then make the decisions themselves. You could be some place in the middle too and inform your planner.

What to Look for in a Financial Planner

For most people, it is important to take into consideration who they will be working with. You need to find someone you can trust and someone that you know will have your best interests at heart. To do that, consider these tips for finding a financial planner that is right for you.

• Who is he or she?

• Where did he or she learn his or her trade?

• What credentials does he or she have that will fit with what you need and want from him or her?

• What is his or her background, and how does it relate to what you need?

• What does he or she do? One thing that is essential to take note of is the fact that financial planners are all different. Our recommendation is to find a Certified Financial Planner, also called a CFP. To be a CFP, they must pass an exam to become licensed. This follows a long list of financial training courses at the college level. In addition, he or she will need to have at least three years of experience working with financial planning clients. While there are many other types of financial planners out there, you want one that has the title to go along with the skills he or she says he or she has.

• How does he or she get paid? It is important to determine this based on the financial planners you are considering. Those that get a commission from the products that they are telling you that