David Lerner Associates: Women and Estate Planning Basics

When it concerns estate planning, females have unique concerns. The fact is that women live approximately 4.8 years longer than men. "That's significant because it means that there's a greater chance that you'll need your assets to last for a longer time period and a greater need to plan for incapacity," says Martin Walcoe, EVP at David Lerner Associates. "It also means that you'll have to take responsibility for your very own estate plan."

What is an estate plan?

An estate plan is a map that reflects the way you want your personal and financial affairs to be handled in the event of your incapacity or death. It allows you to control what happens to your property if you die or become incapacitated.

If you're married, the odds are that you're going to outlive your husband. That's substantial for a few reasons. First, it means that if your husband passes away before you, you'll likely acquire his estate. More importantly, though, it means that to a large extent, you'll probably have the last word about the final disposition of all the assets you've collected during your marriage.

Estate planning may be especially needed if you have minor kids; your net worth exceeds the federal transfer tax exemption amount ($5,340,000 in 2014, $5,250,000 in 2013) or, if less, your state's exemption amount; you own property in greater than one state; monetary privacy is an issue; or you own a business.

Planning for incapacity

Incapacity can happen to anyone at any moment, but your risk generally increases as you age. You must consider what would happen if, for instance, you were unable to decide or conduct your personal affairs. Failing to plan may mean a court would have to appoint a guardian, and the guardian might make decisions that would be different from what you would have wanted.

Health-care directives can help others make sound decisions about your health when you are unable to. These might include:

• Living will – a document that lists the kinds of medical treatment you would want, or not want, under particular circumstances.
• Durable power of attorney for medical care (health-care proxy) – lets several family members or other trusted individuals make medical decisions for you.
• Do not resuscitate (DNR) order – a legal form, signed by both you and your doctor, that gives hospital staff permission to perform your wishes.

There are also tools that help others manage your property when you are unable to, including:

• Joint ownership – allows another person to have the same access to the property as you do. For instance, if you and your spouse have a joint checking account and you become incapacitated, your spouse would still have the ability to make mortgage payments on schedule.
• Durable power of attorney – lets you name family or other trusted individuals to make financial decisions or negotiate business on your account, even in the event that you are disabled, or perhaps because you are disabled.
• Living trust – a follower trustee can move into your shoes to manage property in the trust if something should happen to you.

Wills and probate

A will is quite frequently the cornerstone of an estate plan. It is a legal document that directs how your property is to be distributed when you die. It also allows you to name an executor to perform your wishes as specified in the will and a guardian for your minor children. You can also create a trust in your will. The will should be written, signed by you, and witnessed.

Most wills must be probated. The will is filed with the probate court. The executor collects assets, pays debts and taxes owed, and distributes any remaining property to the rightful heirs. The rules vary from state to state, but in some states, smaller estates are excluded from probate or get an expedited process.

For most estates, there's little reason for avoiding probate, as the real time and costs involved are modest. And, there are actually a few benefits to probate. Because the court supervises the process, you have some assurance that your wishes will be followed. And probate offers some protection against creditors, since creditors are generally required to make their claims against the estate in a timely manner.

However, there are a variety of reasons for avoiding probate also. For some complex estates, probate can take up to two or more years to complete and bind property that your family may need, while adding executor fees, attorney fees, and insurance costs. And, if you have property in over one state, probate may be required in each state. Also, wills and other documents submitted for probate become part of the public record, which may be undesirable if you or your family have privacy concerns.

There are ways for you to avoid probate, if that is your desire. Probate may be avoided by owning property jointly with rights of survivorship; by completing beneficiary designations for property like IRAs, retirement plans, and life insurance; by putting property in an inter vivos trust; and by making lifetime gifts.

What happens if you die without a will or an estate plan?

Regardless if you have a will, some property passes automatically to a joint owner or to a designated beneficiary. For instance, you can transfer property including IRAs, retirement plan benefits, and life insurance by naming a beneficiary. Property that you own mutually with right of survivorship will automatically exchange the surviving owners at your death. Property held in trust will pass based on the terms you lay out in the trust.

Property that does not pass by beneficiary designation, joint ownership, will, or trust passes according to state intestacy laws. These laws vary from state to state. The state laws for intestate succession specify how property will pass, generally in certain proportions to numerous related persons. Such as, a typical state law might specify that property pass one-half to a surviving spouse, with the remainder passing equally to all kids.

Trust basics

A trust is a flexible estate planning tool that can protect against incapacity; avoid probate; minimize taxes; allow professional management of assets; provide safeguards for minor children, old parents, and various other recipients; and protect assets from potential creditors. Most importantly, trusts can provide a means to administer property on an ongoing basis according to your desires, even after your passing.

A trust is a legal entity where someone, referred to as the grantor, arranges with another individual, called the trustee, to hold property for the advantage of another party, named the beneficiary. The grantor names the beneficiary and trustee, and develops the rules the trustee must follow in a record called a trust agreement. With a trust, you can provide various interests to different beneficiaries. For instance, you might provide income to your children forever, with the rest heading to your grandchildren.

You can develop a trust while you are living (a living or inter vivos trust) or at your death (a testamentary trust). A trust you create during your life can be either revocable or irrevocable. You retain the right to change or revoke a revocable trust. An irrevocable trust cannot be altered or revoked. A trust you create at death is irrevocable.

Transfer taxes

When you get rid of your assets during your lifetime or at your death, your transfers may go through federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. Your transfers may also undergo state taxes.

Lifetime Providing

Making gifts during one's life is a common estate planning technique that can serve to avoid probate and reduce transfer taxes. One way to perform this is to capitalize on the annual gift tax exclusion, which lets you give up to $14,000 (in 2013 and 2014) to as many people as you want gift tax free. In addition, there are several other gift tax exclusions and deductions available to help you lessen transfer taxes. Making a gift can also let you see the receiver enjoying the advantage of your gift while you are still alive.

*National Vital Statistics Report, Volume 61, Number 4, May 2013. Header.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC