Estate Planning If You Are Not Wealthy

You may not think you need to have a will. After all, you don’t think of yourself as wealthy. And you think you won’t need to pay any estate taxes (those are only for the rich, right?). And you’re fairly young and in good health, so you aren’t dying anytime soon. But you could be wrong – about all of your assumptions.

There are many reasons that people own their property in joint ownership. One of those reasons is so that the other owner automatically inherits upon your death. But, there are also reasons why that could be a bad idea. You may have accounts that can be “payable on death.” And for those accounts, you would not need a will. But, it is unlikely that everything you own is in joint ownership or a “payable on death” account. So, you need a will.

You probably have heard that you don’t pay “death taxes” unless you have an estate of more than $3.5 million. That $3.5 million is the federal estate tax exemption. So if, you die and your estate is less than $3.5 million, then your family does not pay federal death tax. But if your estate is more than $675,000, you will pay estate tax to New Jersey. And if you start counting the equity in your house, the balance in your retirement account, a life insurance policy that is not in a life insurance trust, and your stocks (even with the hit it took in the stock market these past few months), you might easily be past the $675,000 number. Do you want to pay estate (death) taxes to New Jersey? So, you need a will.

Do you have minor-aged children? Do you want your relatives arguing over who should be the guardians of your children? Do you think that one of your relatives shouldn’t even be the guardian of your pets, much less your children? Are you certain that you will not die until the youngest child is over 18? So, you need a will.

Do you want your family wealth to be destroyed by your creditors, by an ex-spouse, by the stupid decisions of your college-aged kids, by your spouse re-marrying and giving your money and things to the new spouse? So, you need a will.

Of course the wealthy know that they need estate planning. And the majority of them spend the time and money to come up with a plan that leaves them with the peace of mind that comes from being in control as much as possible. They don’t leave things to chance. You may think you don’t need to act like them because you don’t have the same amount of money. But don’t you like the idea that you can leave things the way you want them, not to chance? Don’t you like the idea that your loved ones will be protected from bad luck and bad decisions? So, you need a will. Go call an estate lawyer. You’ll be glad you got a will.

 

Powers of Attorney

A Power of Attorney is a legal instrument that gives certain legal powers from you to another person that you designate. Why does everyone need one? People who are in an accident or who are no longer competent to make their own decisions, need to continue to make financial transactions as long as they are alive. Who will pay the bills, make bank deposits and withdrawals, prepare your tax return, or manage your investments? Who will sign legal documents for you if you cannot, for one reason or another? A durable power of attorney will make life easier for you and your family if times get tough.

The person who signs a Power of Attorney is called the Principal. The Power of Attorney gives legal authority for another person (called an Attorney-in-Fact) to make property, financial and other legal decisions for you. You can give an Attorney-in-Fact broad legal authority, or very limited authority.

Your Power of Attorney can be “immediate” or “springing.” An immediate Power of Attorney is in effect as soon as the Principal signs the Power. The Attorney-in-Fact can go out and act as the agent of the Principal even if the Principal did not intend the Attorney-in-Fact to take immediate action. A springing Power of Attorney does not take effect until you become disabled. The springing Power of Attorney is sometimes used when you do not intend for the Attorney-in-Fact to be able to act as your agent until you are not competent to act for yourself.

The issue with a springing Power of Attorney is that your agent may have to jump through some hoops before he can use the Power of Attorney. Since it cannot be used before you are disabled, you need a doctor (or perhaps two doctors) that will certify that you are not competent. Your agent may not be able to find doctors who are willing to sign a legal document that does certify that you are not competent. Or the institution that your Attorney-in-Fact presents your Power of Attorney to does not accept your document and wants your agent to use their form (very common with banks). If you are not competent, you cannot sign another Power of Attorney.

Obviously, you want your Attorney-in-Fact to be someone you totally trust. You can name your spouse or a relative or even a close friend, so long as that person is at least 18 years of age. Most married persons choose their spouse as their Attorney-in-Fact. You may also wish to name one of your children to act as your Attorney-in-Fact, if your spouse cannot act as your agent. It is not recommended that you name two (2) persons to act jointly as your Attorney-in-Fact. If they cannot agree on an action to take, you have gridlock and no action will take place.

You should ask that person if he wants to act as your Attorney-in-Fact. The person who agrees to act as your Attorney-in-Fact will owe you a fiduciary duty, which means that your best interests must always be placed first while acting as your agent. The Attorney-in-Fact does not have to be compensated, but, especially if the duties are complicated or time-consuming, you may wish to consider compensation.

Decide on who you will designate as your Attorney-in-Fact and call your lawyer to get a durable Power of Attorney signed. If you have already signed one, review it with your lawyer to make sure that the document you signed years ago still meets your needs.

What to Ask Your Estate Planning Attorney

You’ve made your appointment to get your estate planning done and you want to make sure that you cover all the bases with your lawyer. What should you ask her?

Your conversation should include a discussion about wills, trusts (although they are not needed in most cases, you might be one of the persons who should have one), health care directives that appoint someone to act as your health care representative and gives your doctors some guidance on what procedures you do and don’t want done, and a durable power of attorney which allows your agent to manage your personal affairs (such as taking care of your banking, signing any legal documents, paying your bills).

You would also want to talk about estate taxes, both federal and state. The federal limits went up in 2009 to $3.5 million that you can leave to your heirs without paying estate tax. However, the state estate tax is still $675,000. If you have some equity in your house, a retirement plan and some mutual funds, you could be over the state limit and might need some tax planning.

You should be prepared to talk to your lawyer about all of your assets and how they are titled. Is your house in joint tenancy or a tenancy by the entireties? Do you have separate or joint bank accounts? Do you have Payable on Death designations on some of your accounts? Your attorney will want to know these things.

Do you have minor-aged children? Your attorney will discuss guardians with you. You hopefully know whom you want to name as guardian, but your lawyer may have some thoughts on whether to name a couple or just part of the couple, how many back-up guardians you should name, etc.

Do you have pets that you want to provide for? Ask your lawyer about how to accomplish your wishes. She should have some suggestions for you.

You should have a good idea of how you want your estate distributed. Your attorney can give you some strategies if you can’t think of how you want to accomplish a specific goal.

Finally, ask about the fees involved with the drafting of your documents. You should not pick a lawyer based on who is the cheapest or most expensive, but the lawyer should explain whether she charges a flat fee (and how much that fee will be) or whether she charges by the hour (maybe you have a lot of existing wills, trust documents, divorce agreements and other legal documents to review before the lawyer can start creating the best estate plan).

Other questions may come up during your meeting with your attorney. It might be a good idea to bring a pad and pen with you to jot down your questions and to write down the issues that you need to follow up with that arise during the meeting. If you aren’t comfortable with the lawyer you are meeting with, ask around for the name of another lawyer. Your estate planning lawyer should be your lawyer for a long while and you want to feel that you can discuss anything with her.