“Dying is a very dull, dreary affair. And my advice to you is to have nothing whatever to do with it.” —W. Somerset Maugham |
Unfortunately, it is very difficult to follow Maugham’s advice, as Maugham himself found out in 1965 when he died. Perhaps a better way to deal with this dreary affair is to plan properly to make sure your legacy is what you desire and not subject to unnecessary taxes or interference from the state. |
Five short questions will tell you if your affairs are in order
1.Where there is a Will there _________________________.
a. is a way.
b. are relatives.
c. is a better organized estate settlement.
d. is no won’t.(c) A Will is the cornerstone of any estate plan. Everyone should have one, yet only one-third of Americans do. Without a Will, the laws of your state determine who gets your property, which might be relatives you have never even met. Without a Will, the determination of who will manage your estate will also be left to the state. A properly drafted Will helps to make the entire estate settlement process simpler, quicker, and less costly.
2. A Durable Power of Attorney is ____________________.
a. the ability to see through subpoenas.
b. a power that the Energizer bunny has.
c. an important legal document that permits you to nominate someone to make financial decisions on your behalf if you are incapacitated.
d. the opposite of AC power of attorney.(c) A Durable Power of Attorney is a document that allows you to turn over control of your financial dealings, including investments and taxes, to someone whom you appoint in the event of your becoming incapacitated. If you do not have a Durable Power of Attorney, a court procedure would be required to appoint a guardian or conservator to take over your financial affairs. The process of appointing someone can be slow and costly as well as invasive of your privacy. And the person appointed by the court may not be the person you would have chosen.
3. A Health Care Proxy is _________________.
a. a healthy way to vote your stocks at a stock-holder meeting.
b. only for old people.
c. an important document that everyone should have that allows you to pick someone to make health care decisions on your behalf if you are unable to do so.
d. something you can put off until tomorrow.(c) A Health Care Proxy is a legal document that permits you to choose the person you want to make health care decisions on your behalf if you are unable, for whatever reason, to make those decisions on your own. It is based on the premise that you have the right to choose or refuse health care treatments. You do not lose that right if you become incapacitated; you merely lose the ability to make your wishes known. Your health care agent or proxy acts like a stock proxy at a stockholders’ meeting and makes decisions on your behalf. If you wish, the power can include the power to terminate treatments.
4. Trusts are ________________________.
a. only for rich people.
b. for sissies.
c. for many people, but not everyone.
d. better than mistrusts.(c) Trusts can serve a multitude of purposes, including reducing estate taxes, avoiding probate, providing for a disabled family member without disqualifying their eligibility for state or federal programs, managing assets on behalf of children, and sheltering assets from the claims of creditors. They can be relatively simple in their most basic form of a living revocable trust or they can be quite complicated. They can be tailored to your own particular needs and desires.
5. Beneficiary designations on IRAs, and 401(k)s are______________.
a. not important.
b. unnecessary.
c. a tremendous opportunity for saving income taxes.
d. documents that do not have to be reviewed from time to time.(c) A beneficiary designation for an IRA or a 401(k) can provide you with the opportunity to continue the tax-deferred growth of the money in a retirement account for the life of the beneficiary as estimated by the IRS. This means that a 10-year-old grandchild who inherited an IRA, either directly or through a trust that was named as the beneficiary in the beneficiary designation, would be required to take out the money over his or her projected lifetime of 72.8 years, thereby continuing substantial income tax deferral. If the grandchild were to inherit a Roth IRA, the child would be required to take out the money over his projected lifetime of 72.8 years as well, but in this instance there would never be any income taxes due on the money withdrawn from the Roth IRA so the tax-free growth could be tremendous. The key here is that if the beneficiary designation was not up to date or if it passed the funds to the deceased IRA holder’s estate, the IRA money would have to be withdrawn no later than five years after the time of death, which would mean the loss of a tremendous tax-planning opportunity.
You may have noticed that all of the answers were (c). I learned long ago that if you don’t have any idea as to what answer to choose in a multiple guess test, (c) is quite often a good guess. But guessing should have little to do with your estate planning. A well-planned estate leaves your family with much less of a burden when it comes to dealing with the dull, dreary affair.
Steven J. J. Weisman ’70 is a practicing lawyer, college professor, and author. His fourth book, The Truth About Avoiding Scams, was published in February 2008. His other titles, all published by Prentice Hall, are: A Guide to Elder Planning (2003), 50 Ways to Protect Your Identity and Your Credit (2005), and Boomer or Bust: Your Financial Guide to Retirement, Health Care, Medicare, and Long-Term Care (2006).
Since 1982, Weisman has been sharing his estate-planning legal expertise
with radio listeners. Currently he is the host of the syndicated
radio show, A Touch of Grey.
