Families change. Laws change. Be prepared.

Filed under: Banking & Finance,Focus,Print | Tags:, ,

Death is the one certainty.

But, planning for it is uncomfortable and can be complicated, especially when blended families, multiple marriages and changing estate and probate laws are a factor.

The complications could be the reason behind why so few Americans have wills. Only 35 percent have wills and 29 percent have set up power of attorney documents.

But, as the baby boomer population ages, experts predict more wealth to change hands in the coming decade than at any other point in history. That property, or Grandma’s diamond ring, could go to the person designated in a will. Or, it could go to pay the court fees when all the property gets tangled up in court.

“When you die without a will, you die intestate, the state laws are going to determine how your assets are distributed,” said Ann Koenigsman, tax manager at Stockman Kast Ryan + Co. “What kind of mess are you leaving them?”

Don’t fear the reaper

Every year for the next 50 years, $1 trillion in assets will pass from one generation to the next, according to the Institute for Preparing Heirs. Personal wealth is typically non-financial assets like a house, land or a business. And the majority of that wealth will go to spouses, children and charity.

“They will fight over things,” Koenigsman said. “Why not take care of it yourself?”

The number of people planning for the future through wills, power of attorney documents and trusts has gone down in recent years. In 2007, when the economy was booming, an estimated 31 percent of Americans had a trust arranged. In 2009, it dropped to 18 percent, according to a 2010 Wills and Estate Planning survey by Lawyers.com.

“It’s just procrastination — come on, who wants to think about their death?” said Gordon Williams, Colorado Springs attorney who specializes in probate, wills, trusts and estates.

It shouldn’t be so frightening, he said. An estate plan is an overview or analysis of a person’s assets and a list of where those assets should go and who should take care of them. Without advance directive, things end up in court, he said. And, that could cost $15,000 to $20,000 at a minimum.

There are many tools to help people plan, including living trusts, which can pass assets to heirs without going to probate court. And, a trust cannot be contested.

“Don’t let your eyes glaze over when you hear the word trust,” Williams said. “So many people think the ideas are exotic and complicated. They are not.”

A trust is holding property for someone. In a living trust, the person who set it up can be the trustee. When the person dies, the trust takes over.

“It can say ‘I give the property to my kids, but hold it until they are 35 and in the meantime, make managed distributions,’ “ Williams said.

Think of the children

Typically having children is the issue that brings people to the planning table. Trusts are a good way for parents to control their assets from the grave. Twenty-five percent of Colorado Spring’s population is under the age of 18. No planner thinks it’s a good idea to hand an 18-year-old any large sum of money.

“Children who lost parents, all of a sudden that child comes into a ton of money,” Williams said. “Most of the time I see it frittered away. I’ll never forget, one time a 20-year-old (beneficiary) pulled up with a white-and-tan new Mercedes SUV.”

It might seem like the right thing to name your child as the beneficiary in the will to all your worldly assets, said Susan Strasbaugh, president of Strasbaugh Financial Advisory. But, it’s best to put the assets in a trust and let a trustee dole out the money as needed or at specific age milestones.

“If they need a car, the trustee might buy them a Toyota instead of a Ferrari,” Strasbaugh said.

She recommends distributing the estate in thirds — first installment at age 23, then 28 and then 33.

“I caution people not to be to dictatorial about this like saying if you complete college you get this and if you complete a master’s you get this,” she said. “You are really dictating from the grave.”

But, trusts can be set up any way a person wants, Koenigsman said.

“I saw one trust say there would be no distribution unless the child married within a certain faith,” Koenigsman said.

Sometimes the hardest part about estate planning is naming a guardian for children, Strasbaugh said.

“It’s hard to think about it — it’s so final and there is never a perfect person to raise your children,” she said.

That may be, she said, but would your rather choose a relative or have the courts choose one for you. The court costs to make the guardian decision, then, are taken from the estate and the children end up with less.

“It can get ugly and cause family issues and it’s not helping the children at all,” she said.

This year, there are new twists in Colorado laws that affect estate planning, Williams said. It used to be that if a child was legally adopted by a step parent they had no claim against the estate of the birth parent. That changed in August. Also, a child born as a result of sperm or egg donation also can be considered an heir of the donor. In both cases, a person should include a disclaimer — to refuse — in the will so that no claim can be made.

“Most people, when they adopt a child away, they don’t want that child to be an heir,” he said.

You don’t have to be a millionaire

People think about estate planning as being for after death, Strasbaugh said. There are also important documents while you are alive, including power of attorney documents and living wills, which should be considered.

“It’s who you want to make medical decisions for you, if you were unable to speak for yourself,” Strasbaugh said. “It is the same thing financially if you are in an accident and in a coma. It’s important to get documents in place before you can’t make those decisions.”

A spouse, for example, could not take money out of an IRA without a power of attorney. And, a living will outlines the care you want at the end of your life.

Today’s estate tax law affects estates of $5 million or more in value. But, the law could change next year and affect estates valued at $1 million. A key issue is that no matter what the value of the estate, life insurance is part of the value. “And, that can add up to $1 million very quickly,” Strasbaugh said.

Something that happens often is a person forgets to update the beneficiaries on 401K, IRA and life insurance documents. Such contracts trump a will, Strasbaugh said. So, they better match up.

“I’ve seen issues where someone has come in, who is married for five years, and the ex spouse is still named as the beneficiary of a half million 401K plan,” she said.

About 10 percent of people in El Paso County are over the age of 65 and median house is $211,900. Someone will get that property at the owner’s death, Strasbaugh said.

“You do have an estate plan, if you haven’t written it down, the state has one for you,” Strasbaugh said. “If you don’t want the state to figure out what that is, you need to put that in writing.”

Top things to do before you die

Make sure the beneficiaries listed in 401K, life insurance and IRA documents match the will. The 401K, life insurance and IRA documents trump the will. So, an ex spouse could find herself or himself with some of your estate if you did not update your documents.

Name a guardian for the children. It’s a difficult question to ask of a family member or friend and no one is good enough to raise your kids but, if you don’t decide, the courts will.

Set up power of attorney, both for medical and financial issues, regardless of the value of an estate. This will save family members from going to court and paying thousands in legal fees.

If the value of your estate is more than $100,000, set up a trust to be distributed to children over a period of time, rather than give the estate’s value to them all at one time, especially if they are only teenagers. $100,000 can be spent in one day on one car. And, don’t forget that life insurance is included in the value of the estate.