As with any other major transaction, it is always recommended to seek the advice and care of an attorney when preparing and executing your estate plan, but out of laziness or financial inability many Americans still fail to plan for the protection of their resources. If you fail to hire an estate planning attorney to work with you on your estate protection plan, at least follow the eight steps below and make sure your family is left with nothing but a large pile of debt. As the old saying goes, if you don’t plan, you’re basically planning to fail.
Step 1 – Sign a financial power of attorney.
A financial power of attorney designates an agent of your choice to manage your financial affairs if you become incapacitated. This person can pay your bills, file your taxes, and manage your investment, retirement, and life insurance accounts. Without a financial power of attorney, your family would have to get court approval to step in, which will cost them valuable time and money.
Step 2 – Designate a Care Surrogate.
A care surrogate is basically a power of attorney for your personal well-being. The surrogate mother makes care decisions for you when you are unable to do so and ensures that your living will is properly executed so that your chosen end-of-life measures are carried out according to your specifications. In addition to designating your care surrogate, you must also prepare your living will.
Step 3 – Calculate your net worth.
Start by listing your largest assets and their current market value. This could be your home and any vehicles you own outright. Next, you want to add your more liquid assets such as checking and savings accounts, cash, CDs or other investments such as retirement accounts. Add to that the current market value of any personal items that may be worth more than $500. This number represents your total assets. Now make a separate list of all major outstanding obligations, such as the balance on your mortgage or car loans. Add to that all your personal obligations, such as credit cards, student loans, or any other debt you may owe. This number represents your total liabilities. If you subtract the total liabilities from the total assets and you have your net worth. Keep this figure handy when speaking with your estate planning attorney, your financial advisor, and your accountant.
Step 4 – View your beneficiaries.
Each year, you should review the beneficiary forms on file for all of your bank accounts, retirement accounts, and life insurance policies. These forms determine who will inherit most of your wealth. If your spouse is listed as a beneficiary on any of these accounts, you should list your children as contingent beneficiaries in case something happens to your spouse. If your spouse dies before you, your children can put their inheritance into an inherited IRA and extend the distributions and tax deferrals throughout their lives. This can save your kids thousands in tax liability.
Step 5 – Write a will or update the will you have.
Without a will or living trust, the assets you worked so hard to accumulate during your lifetime will be distributed as the state in which you live sees fit. If you’ve had a major life change (such as marriage, divorce, birth of a child, or death of an immediate family member) since you made your will, the division of your estate can get very messy without an updated will. To further protect your family, talk to your estate planning attorney about implementing various trusts and tax shelters that can help you preserve your wealth for future generations of your family.
Step 6 – Plan for Inheritance Tax.
Currently, Florida does not collect state taxes, although things were different prior to January 1, 2005, when Florida, like many states, collected a separate state tax in addition to the federal estate tax, called a “pick-up tax.” The collection tax was equal to a portion of the total federal estate tax bill. The federal estate tax is scheduled to disappear completely in 2010, but then the provisions of the Reconciliation of Economic Growth and Tax Reduction Act will disappear and the estate tax will , along with the collection tax, will return on January 1, 2011. Your estate may be subject to double taxation in 2011. The year 2010 will be a year with no limit, in that the EGTRRA will no longer provide protection to individuals with a net worth of less than $1 million.With more families exposed to the estate tax, it is imperative that you sit down with your estate planning attorney and talk about preparing a combination of a will and trusts as soon as possible.
Step 7 – Title your assets correctly.
A couple whose will has established a credit recovery trust to maintain the estate tax exemption of the first spouse who dies without bankrupting the surviving spouse must keep their assets separately in each spouse’s name or they will not be eligible for the benefit . If instead they want to have their estates distributed through living trusts, they should remember to rename their assets in the name of the trust. Failure to properly title your assets can negate any specific intentions you may have in creating your asset protection plan. If you are not sure how to title your assets to ensure the desired outcome, you should contact your estate planning attorney and request a consultation.
Step 8 – Be Generous.
Each individual can give up to $13,000 per year in cash, stock or other property to another individual without worrying about gift or estate taxes. An individual is also permitted to pay another person’s tuition or tuition, as long as the check is mailed directly to the school, in addition to the $13,000 gift fee. The same goes for medical expenses, as long as the check is mailed directly to the health care provider. You also have the option to give up to $1 million to an individual and receive a one-time gift tax exemption. As the old saying goes, give and you will receive.
While these eight steps will provide you with basic protection, for a true and complete asset protection plan, you should contact your estate planning attorney and work together to create a plan for your future and your family’s financial future for generations to come.