Make sure your estate plan is current, will meet goals

Many times heirs are left in the lurch

Your Money

February 22, 2004|By Julie Jason

Review your estate plan regularly with your spouse and attorney to make sure your will is current and reflects your wishes.

This is especially important any time you change financial advisers; buy or sell real property or insurance; retire; or go through any life-changing event such as a divorce, loss of a spouse or a move to another state, especially to or from a community property state.

No matter what the size of the estate, everyone needs a will, and tax planning is a must for estates over $1.5 million, said Jevera Kaye Hennessey, an estate planning attorney in Greenwich, Conn.

In Connecticut, for example, if your spouse dies without a will, you will receive the first $100,000, plus one-half of the probate estate, with the remainder going to your children. A valid will prevents the state from determining your heirs and how much they receive.

But many people don't realize their wills go only so far in the management of their estates.

Here are some problems financial planners and other professionals such as Hennessey and Donna L. Roseman, a manager in the tax department at Kostin Ruffkess and Co., see all too frequently, and tips for solving them:

Many times, people don't know what is in their wills, leaving heirs in the lurch. Spend some time reviewing your will, paragraph by paragraph, with your attorney. The will needs to make sense to you. If it doesn't, you need to revise it.

A common method of lessening the estate tax burden is an insurance trust, which can yield a substantial sum that is free of estate and income taxes at death. However, insurance trusts must be financed properly and owned correctly to escape inclusion in the estate.

Is the trust paying the premiums? Is the trust the owner of the policy? Read your insurance policies. If you are shown as the owner, the insurance proceeds will be included in your estate, thus defeating any anticipated tax savings.

If you use beneficiary designations for such tax-deferred assets as 401(k)s and individual retirement accounts, your will does not direct their disposition. Make sure the designations are consistent with your estate plan, especially as those accounts may be some of your largest holdings. Keep your lawyer informed of any changes.

Beneficiary designations may enable your heirs to take advantage of continued tax deferral instead of having the IRAs distributed at your death, which subjects them to immediate taxation. That could force your heirs to liquidate the accounts to pay for taxes.

Name a contingent beneficiary. Not having one if a spouse dies first will result in the estate, rather than the children, inheriting an IRA. And the IRA will be deemed distributed and subject to income taxes.

If you're trying to avoid probate, do it correctly. One way is to set up a revocable living trust. But don't forget to re-title assets into the trust's name, or the planning fails, and the assets wind up in probate despite your best intentions.

Provide for the disposition of your remains. If a next of kin cannot be found to make a decision, nothing happens until someone, sometimes the funeral home, applies to the probate court to award custody.

Hennessey points out that gay couples cannot direct the disposition of a partner's remains. Partners have no standing under the law, unless, during their lives, they granted each other that status in accordance with applicable laws. Otherwise, by statute, the next of kin controls custody of remains.

Attorney Julie Jason is a money manager and retirement finance author who writes for The Advocate in Stamford, Conn., a Tribune Publishing newspaper. E-mail her at yourmoney@tribune.com.

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