Don't Die Before Reading This

How do you know if you've got an ironclad estate plan? Ask your heirs that question when they conjure up your spirit from beyond the grave with their Ouija board.

While you'll never truly know -- in this life, at least -- if your final financial wishes were carried out glitch-free, you can leave less up to chance later by heavily scripting how you want your legacy to play out. With a little forethought, you can knock out three major estate-planning hurdles by:

  • Empowering others to make decisions on your behalf when you can't due to incapacitation (temporary or otherwise).
  • Settling who gets what when -- and how much.
  • Keeping lawyers and the IRS from clotheslining your heirs at the finish line.

For some, these tasks may simply require updating beneficiary forms for all of your assets and filling out two critical documents. If the laws in your state handle the dispersal of your assets, property, offspring, and Beanie Baby collection to your liking, simply revisit the topic as your family, fortune, and IRS tax code expand.

However, don't automatically assume that you can take the shortcut to the estate-planning finish line if you're single or you aren't filthy rich. The density of a plan depends entirely on the complexity of your family tree and finances. If you live in a state where probate is an issue, or if your estate is complex (due to the riches you've amassed or a tangled family tree), don't head to the pearly gates without adequate estate-planning reinforcements.

The no-will way
Dying without a will subjects your estate to a ghastly-sounding legal affliction called intestacy. Your assets will be disposed of by the state under lowest-common-denominator laws, meaning that bloodlines and marital designations guide all inheritance decisions -- starting with spouse, surviving children, and their surviving spouses.

Dying intestate isn't necessarily a reason to draw up a will. But the equally grisly term of probate may sway you to call a lawyer, stat.

All states have probate laws; it's the variation in these laws that makes the process more of a headache in some locales than others. Having a will on record does not mean that your estate will avoid probate, but it does speed things up. Probate is not exactly a zippy process: It can drag on for anywhere from a few months to several years. (Estates that fall below the state-set maximum -- typically $50,000 -- with few creditors and beneficiaries are often ushered through a faster and less costly probate process.)

During probate, the accounting and dissemination of the fruits of your life's labor will take place in full public view. (Seen those newspaper ads soliciting beneficiaries and creditors? Now picture your family name splashed all over the classifieds.) After the court determines whether you have a legal will on file, it appoints an executor (typically a family member) who, under the court's supervision, divides up your assets to pay debts, taxes, and court fees.

The executor's last job is awarding your beneficiaries what's left. If both you and your spouse die intestate while your kids are young, the courts will take care of all decisions regarding your children, too. State laws limit the amount of property and assets minors can manage on their own (thus preventing your 16-year-old from cashing out your IRA to buy a Camaro). However, without a will naming a manager of your assets until your kids are adults, the state will pick someone to do the job.

Sound good? If not, put yet another check mark in the "get a will" column.

What will a will do?
A will can ensure faster access to assets for your loved ones and less time and money spent on legal fees. It identifies the person you've chosen as executor for your estate, beneficiaries (the people and organizations you want to inherit your assets), guardians for your children, and a property guardian to manage assets left to the little ones until they're grown up. It lets you orchestrate the payment of debts and taxes and tells the court to provide a living allowance to your survivors during the probate process. A will also lets you leave assets to non-relatives, unregistered domestic partners, charities, or organizations that wouldn't be recognized as beneficiaries under state law alone.

Surviving spouses are often spared probate -- that is, until they try to sell an asset held solely in the deceased's name (as opposed to items held in joint tenancy, considered community property, or specifically bequeathed by -- you guessed it -- a will). Before you can sign over a deed to the house or sell stocks from your deceased loved one's brokerage account, the court needs to establish that you have the authority to do so. Cue probate.

How much can a will save you?
At the very least, having a will on record will greatly expedite and slash the costs of probate. The team ushering your estate through the process takes a healthy cut of your legacy to do the job. The longer it takes, the bigger the bill. According to the AARP, probate costs tend to eat up around 5% of the gross value of an estate (for court fees, attorneys, appraisers, and fiduciaries -- your executors). On an estate worth $800,000, that comes to $40,000.

A will can also help identify costly estate tax issues. You might not be rich enough to trigger the estate tax right now ($5 million if you die in 2011 or 2012). But without clear guidelines outlined in a will on how to distribute, title, and move money to safer tax havens, your estate will likely be subject to the estate tax, which currently has a 35% tax rate.

Do your loved ones a favor and, at the very least, construct a simple will. It's better than nothing, and, who knows, it may earn you karmic points in the afterlife.

For more on getting your estate in order, read about:

Dayana Yochim isn't planning on dying anytime soon. The Motley Fool has a disclosure policy.


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