In Case of Death

IN CASE OF DEATH:

A to-do list for those left behind

In the initial weeks after a family member dies -- long before you distribute assets or pay off creditors -- someone needs to tackle the following tasks. Most usually fall to the estate's executor.Get death certificates. Estimate how many you need and ask for twice as many, suggests Ann Perry, author of The WI$E Inheritor (Broadway Books, $12.95). You'll need certified copies to claim insurance proceeds and to transfer money out of bank, brokerage and mutual fund accounts, among other things. Twenty is not an unreasonable number, says Perry. You'll save yourself trouble by letting the funeral home get them for you.

Have the mail forwarded.

The bills and financial statements that come in the mail are often the most reliable way to find all the deceased person's assets and debts. The mail will also be your trigger to cancel newspaper and magazine subscriptions, cable-TV service and other recurring expenses, and to request refunds where appropriate.Hold the bills. Before you pay even the phone bill, the executor needs to determine if there are enough assets to cover all bills and expenses. If not, creditors have to line up -- with state law determining which have priority. (An exception: If a survivor continues to live in a home, you should continue to pay the mortgage and utility bills.)

Open a bank account.

You'll need a place to deposit interest and life-insurance proceeds, and from which to pay bills for the estate.

Apply for a taxpayer-ID number.

The IRS considers the deceased person and his or her estate to be separate taxpaying entities. So you'll need a separate tax-identification number to file tax returns for the estate, which will account for dividends, interest and capital gains on the deceased person's assets during the administration of the estate. (You can skip this if the income is less than $600.)

You'll also need to file final federal and state income-tax returns, accounting for your family member's earnings until the date of death. A federal estate-tax return is due if assets in the estate exceed $1 million in 2003 (that figure jumps to $1.5 million in 2004 and 2005).

Notify social security. If the person was receiving social security benefits, you'll have to return the check for the month he or she died, even if the death occurred at the end of the month.Buy a notebook. "Immediately start writing everything down," advises Florida attorney Mary Sue Donohue, such as who you talked to at the insurance company and the bank. "There's a lot to keep track of," she says.

CASE OF DEATH: A to-do list for those left behind
In the initial weeks after a family member dies -- long before you distribute assets or pay off creditors -- someone needs to tackle the following tasks. Most usually fall to the estate's executor.
Get death certificates. Estimate how many you need and ask for twice as many, suggests Ann Perry, author of The WI$E Inheritor (Broadway Books, $12.95). You'll need certified copies to claim insurance proceeds and to transfer money out of bank, brokerage and mutual fund accounts, among other things. Twenty is not an unreasonable number, says Perry. You'll save yourself trouble by letting the funeral home get them for you.
Have the mail forwarded. The bills and financial statements that come in the mail are often the most reliable way to find all the deceased person's assets and debts. The mail will also be your trigger to cancel newspaper and magazine subscriptions, cable-TV service and other recurring expenses, and to request refunds where appropriate.
Hold the bills. Before you pay even the phone bill, the executor needs to determine if there are enough assets to cover all bills and expenses. If not, creditors have to line up -- with state law determining which have priority. (An exception: If a survivor continues to live in a home, you should continue to pay the mortgage and utility bills.)
Open a bank account. You'll need a place to deposit interest and life-insurance proceeds, and from which to pay bills for the estate.
Apply for a taxpayer-ID number. The IRS considers the deceased person and his or her estate to be separate taxpaying entities. So you'll need a separate tax-identification number to file tax returns for the estate, which will account for dividends, interest and capital gains on the deceased person's assets during the administration of the estate. (You can skip this if the income is less than $600.) You'll also need to file final federal and state income-tax returns, accounting for your family member's earnings until the date of death. A federal estate-tax return is due if assets in the estate exceed $1 million in 2003 (that figure jumps to $1.5 million in 2004 and 2005).
Notify social security. If the person was receiving social security benefits, you'll have to return the check for the month he or she died, even if the death occurred at the end of the month.
Buy a notebook. "Immediately start writing everything down," advises Florida attorney Mary Sue Donohue, such as who you talked to at the insurance company and the bank. "There's a lot to keep track of," she says.

* Sorting Out An Estate

Sorting out a Life
Heirs. Creditors. The IRS. How to handle them all if it's up to you to settle an estate.
By Kristin W. Davis
December 2003
In a 30-year career as a bank trust-department officer -- and as executor of scores of estates -- Sherry McGillicuddy has seen enough disappearing assets that she frequently changes the locks on clients' houses when they die. In one case, she came across a woman's sons in a fistfight on the front lawn. "One of the wives had a crowbar trying to get in the front door, and the other was up on a ladder trying to get in a window," says McGillicuddy, who is executive vice-president of Frost National Bank, in Austin, Tex. Her job was to tell the snarling heirs that their mother had already carefully divided her possessions, marking each item with a sticker on which she'd written the name of one son or the other.
Unseemly as it may seem, it is a good idea to secure, or at least inventory, a deceased loved one's possessions early on, to avoid a free-for-all. "I had to stop them from carting off furniture," Holly Ocasio Rizzo, a San Clemente, Cal., resident, says of the "vulturous relatives" who showed up after her father's death in 2000.
And even if your family isn't the type to go to war over Grandma's silver, a death in the family sets off a long chain of sometimes delicate financial tasks that someone has to master, despite his or her grief. Where's the will? What bills have to be paid? What's the best way to distribute household possessions or sell stuff no one in the family wants? If you're the one who has to sort it all out, this guide is for you.
Where's the will?
You could be in for a hunt if it isn't tucked away in an obvious place, such as a desk drawer, file cabinet or home safe. Mary Sue Donohue, a trusts-and-estates lawyer in Boca Raton, Fla., says some people even store their will in the freezer, wrapped in foil to protect it from fire. If the will doesn't turn up at home, check the person's place of business or look for the name of a lawyer who might have a copy. To get into a deceased person's safe-deposit box at a bank, you generally need a key plus a copy of the death certificate.
Often, a will doesn't turn up at all. After Joanne Sammer's 72-year-old father died unexpectedly last year, she searched his desk in his house in Lakewood, N.J. She found "tons of old bills, canceled checks, check stubs and other financial flotsam," but no will. A funeral director steered her to a county Web site that spelled out how to handle the estate of someone who dies intestate, that is, without a will. "None of us had ever dealt with anything like this before. We were cowed by it all," says Sammer, who lives in Brielle, N.J. But even though she had to deal with the extra hassles of appearing in probate court and posting bond as a guarantee that she would faithfully handle the estate -- a requirement that can be waived in a will -- "once we got into it, it wasn't as bad as I expected," she says.
Where's the money?
If you're lucky, your loved one has left behind a tidy record of every mutual fund account, life-insurance policy and retirement asset, not to mention an inventory of household valuables. But more often "you're going through that person's file drawers, checkbooks, account statements, anything you can" to track down assets, says McGillicuddy. The best guide is the past three or four years' tax returns, which will show where interest and dividends have been paid or capital gains taken. But as you clean out drawers and boxes, also keep an eye out for canceled checks, deeds, stock and bond certificates, insurance policies, annuities, and evidence of employee benefits, such as a 401(k) or pension plan. Think of yourself as a detective out to deconstruct a financial life. If there's no sign of a life-insurance policy, for instance, look for a canceled check that might represent a premium payment.
Additional clues can be the name of an accountant or financial adviser in a Rolodex, PDA or old-fashioned address book. You might also seek out e-mails with financial statements attached, a spreadsheet or other computer files that might list assets.
In extreme cases you may need to search public records. If you know someone had three acres of land in Kentucky, for instance, you can search deed records at the county clerk's office, says McGillicuddy. Personal effects are usually easy to find, but not always. McGillicuddy tells of a case in which a woman's jewelry went missing for two years. "We couldn't find any of the rings she wore every day," or her diamond earrings. "It was a total mystery," the trust officer recalls -- until the woman's daughter changed a roll of toilet paper one day. The jewelry was wrapped in tissue and stuffed inside the spindle of the toilet-paper holder. Apparently, that's where her mother hid the gems every night.
A PARTING GIFT: ORGANIZATION
State treasuries hold some $23 billion in unclaimed assets, much of it stocks, bonds, bank accounts, and real-estate and insurance proceeds that are abandoned because the owner died without leaving a paper trail. If your own family would have trouble locating all of your assets, do them the favor of recording what you own and where it resides. Yes, pen and paper or a simple computer spreadsheet will do. But if you need a nudge, a fill-in-the-blank workbook or software program can get you organized. Our favorites:
The Beneficiary Book (Active Insights, $29.95). The three-ring-binder format lets you add your own documents along with the detailed worksheets supplied.
Personal RecordKeeper 5 (Nolo, $35.97). This software program gathers even more exhaustive detail for your heirs, and can generate a net-worth statement or create a household inventory for your own use.
Your Family Records Organizer (Kiplinger's, $14.95). The software records everything from the location of your brokerage account to your home-safe combination and the kids' allergies and medications.
What's it worth?
It's not hard to place a dollar value on stocks, mutual funds and other financial assets, though you'll need to research share prices as of the date of death. You don't have to worry about what the deceased paid for investments because the tax basis is stepped up to date-of-death value. But what's an antique breakfront worth? Or a baseball-card collection? For IRS purposes, you're supposed to determine the property's fair-market value (the price a buyer would be willing to pay), which may bear no relationship to what an item originally cost. A dining-room table purchased for $15,000, for instance, might net $800 at auction, says Roger Hall of Hall Hanley, a Pittsburgh company that specializes in liquidating estates. It's smart to seek appraisals for valuable jewelry, furs, antiques and collectibles, not just for Uncle Sam but to ensure that such items are distributed equitably or that the estate gets fair value for them if they're sold. For the IRS, personal items that are not particularly valuable can be grouped under the general heading "Furniture, furnishings and personal effects" and given a lump-sum value, says Julia Nissley in her book, How to Probate an Estate in California (Nolo Press, $49.99).
Debts of the deceased
My relatives were under the mistaken impression that you could walk away from the debts," says Holly Rizzo. You can't.
Before any money can be distributed to heirs, creditors get first crack at the estate. (Assets that pass directly to a named beneficiary, such as life insurance, an IRA or a pay-on-death bank account, for instance, are notable exceptions.) If necessary, hard assets should be sold to raise the cash needed to pay off debts.
Finding debts usually isn't difficult. "Creditors are not shy about finding you," says McGillicuddy. Nonetheless, state laws generally require you to notify creditors of the death and even to post a notice in a local newspaper.
What happens then can be unpredictable. When her daughter died unexpectedly in 2002 with substantial debt, Marilyn Willenbrink of Bluffton, S.C., sent letters to each creditor. Several never bothered to make claims against the estate, including one credit-card issuer that was owed $16,000. A utility company, however, made a claim for $63.
Family members are not expected to foot the bill for debts that exceed estate assets, but one credit-card company nonetheless asked Willenbrink to pay up. "Anyone could be quite intimidated by that," she says. "Fortunately, I knew I was not responsible for the bill."
If there's not enough money to pay all the debts, certain creditors get priority, depending on state law: The funeral home, the IRS and health-care providers all get paid before credit-card issuers, for instance. If the estate is insolvent, you'll need the help of a probate lawyer to sort out who should get how much.

Unfinished business
What if a family member dies before completing a real-estate transaction or before fulfilling the terms of some other financial contract? Generally, the executor is obliged to follow through on contractual obligations. Donohue, for instance, had a contract to buy a house from a woman who died before the transaction closed. The family wanted to back out of the deal, but she successfully sued to complete the sale.
But sometimes you can appeal to reason. Rizzo says that her father's landlord tried to keep the security deposit on his apartment, arguing that he had broken the 12-month lease. But Rizzo objected to the management company and got the money returned to her father's estate.

Now, who gets what?
Sometimes a will is very specific, leaving the jewelry to one heir and the oriental rugs to another. But often, the will leaves property to heirs in "equal shares," requiring family members to find a way to choose for themselves.
In one estate McGillicuddy handled, a woman's will instructed her to give Monopoly money to each of four daughters and then to conduct an "auction" to determine who inherited which items. But families often do fine with a simple get-together in which each heir chooses an item in turn, either pulling names from a hat to determine who goes first or choosing by birth order, says Donohue. If the heirs choose items that aren't equal in value, sometimes there's a cash distribution to even things out.
"It can be a delicate process," says McGillicuddy. "Most families are dysfunctional to some degree, and they have emotional baggage they're bringing along."

What to do with what's left?
If the remainder is modest, you may want to hold a tag sale or simply give household items and clothes to charity. "I would have loved to have held a yard sale or an estate sale," says Rizzo, but "we sold everything to a secondhand-furniture store."
If there are numerous valuable items, such as artwork or collectibles, it may simplify your life to hire an estate-liquidation company to do the work for you. Hall Hanley, in Pittsburgh, for instance, can help inventory assets, arrange for appraisals, ship goods to family members, and sell or auction items no one in the family wants to keep. The cost can run several thousand dollars but is worth it if you'd otherwise have to coordinate those efforts from out of town. You can even auction the house.

As for automobiles, if they aren't left to anyone in particular, they can be included in the property that is distributed among heirs, or they can be sold, with the proceeds going to the estate. (Either way, you will have to change the title with the local department of motor vehicles.)

Hiring help
Joanne Sammer was able to handle her father's estate -- even absent a will -- without hiring any outside help. Rizzo, who lives in San Clemente, Cal., paid a probate attorney about $500 to handle most of the paperwork required to settle her father's estate in Cottonwood, Ariz. Willenbrink was not only out-of-state but also needed legal counsel for handling creditors. She paid a Tennessee lawyer $1,800 in fees.
You could spend much more if you need help with a more complicated estate -- one with, say, a closely held business, limited partnerships, or oil and gas investments (anywhere from $2,500 to $25,000 for an estate of $1 million or less, says Donohue). You may also need legal help if anyone in the family is likely to contest the will. Another option is to hire a bank trust department to serve as your agent and handle all the details. That could cost as much as 1% to 3% of the estate.
However, there are intangible rewards to doing the job yourself. "It's as if you're doing the last service for your dead relative," says Rizzo. "It takes your mind off the grief a little."
--Reporter: Joan Goldwasser

IN CASE OF DEATH: A to-do list for those left behind
In the initial weeks after a family member dies -- long before you distribute assets or pay off creditors -- someone needs to tackle the following tasks. Most usually fall to the estate's executor.
Get death certificates. Estimate how many you need and ask for twice as many, suggests Ann Perry, author of The WI$E Inheritor (Broadway Books, $12.95). You'll need certified copies to claim insurance proceeds and to transfer money out of bank, brokerage and mutual fund accounts, among other things. Twenty is not an unreasonable number, says Perry. You'll save yourself trouble by letting the funeral home get them for you.
Have the mail forwarded. The bills and financial statements that come in the mail are often the most reliable way to find all the deceased person's assets and debts. The mail will also be your trigger to cancel newspaper and magazine subscriptions, cable-TV service and other recurring expenses, and to request refunds where appropriate.
Hold the bills. Before you pay even the phone bill, the executor needs to determine if there are enough assets to cover all bills and expenses. If not, creditors have to line up -- with state law determining which have priority. (An exception: If a survivor continues to live in a home, you should continue to pay the mortgage and utility bills.)
Open a bank account. You'll need a place to deposit interest and life-insurance proceeds, and from which to pay bills for the estate.
Apply for a taxpayer-ID number. The IRS considers the deceased person and his or her estate to be separate taxpaying entities. So you'll need a separate tax-identification number to file tax returns for the estate, which will account for dividends, interest and capital gains on the deceased person's assets during the administration of the estate. (You can skip this if the income is less than $600.) You'll also need to file final federal and state income-tax returns, accounting for your family member's earnings until the date of death. A federal estate-tax return is due if assets in the estate exceed $1 million in 2003 (that figure jumps to $1.5 million in 2004 and 2005).
Notify social security. If the person was receiving social security benefits, you'll have to return the check for the month he or she died, even if the death occurred at the end of the month.
Buy a notebook. "Immediately start writing everything down," advises Florida attorney Mary Sue Donohue, such as who you talked to at the insurance company and the bank. "There's a lot to keep track of," she says.

* Money Matters

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Inherit Money?
Advice:

Your first move should be to deposit your new wealth in a bank or brokerage account, advises Martin Shenkman, a tax and estate lawyer in Teaneck, N.J.
With the money tucked safely away, there's no need to make hasty decisions about what to do with it.
Your mortgage may be the one debt you want to keep, if you've locked into a relatively low interest rate and aren't planning to retire right away. Paying off a 5.5% mortgage, for example, is the equivalent of earning 5.5% on your money. On average, you should be able to earn 7% or 8% annually on a good mix of stocks and bonds, a more profitable use of your funds. Paying off your loan also means losing the tax deduction for mortgage interest.

Taxes
Some inheritances, such as life insurance proceeds, are tax free. But, depending on its size, an estate may be subject to federal or state estate taxes. In 2007, estates worth up to $2 million are exempt from federal estate taxes. But more than a dozen states levy their own estate tax, often on smaller estates, and a few states require heirs to pay an inheritance tax.
Record the value of everything you inherit as of the date of your benefactor's death. That date usually determines your new cost basis for tax purposes; you'll be taxed on any appreciation from then until the date you sell the asset.
Inheriting a retirement account, such as a 401(k) or a traditional individual retirement account, is tricky business that requires professional advice. The rules vary depending on whether you're a spouse, a named beneficiary of the account or an heir named in the will.

You can usually inherit a Roth IRA without tax consequences, but that's not true of a regular IRA. If you simply withdraw the money from an IRA or 401(k), you'll owe taxes on the entire amount. Only if the benefactor is a spouse can you roll over an inherited IRA into your own IRA.
The best strategy would be to retitle the inherited IRA as a "beneficiary IRA" in your name and that of the deceased. That way, the money will continue to accrue tax-deferred earnings. In the year after the original owner's death, you will be required to begin taking annual withdrawals based on your life expectancy. Rules approved by Congress in 2006 allow you to convert an inherited 401(k) to a beneficiary IRA and handle it the same way. Previously, only spouses could transfer a 401(k) to their own IRA.

Investing
Don't let sentiment influence the way you handle an inheritance. A portfolio of bonds makes no sense if you're depending on asset growth to finance three decades of retirement, for example. Or perhaps your benefactor hung on to a large stock position to avoid a big tax bill. With the tax slate wiped clean, this could be the time to sell and start fresh.

If you plan to work for another decade or longer, you can afford to take more risk, putting 80% or more of your inheritance into a diversified mix of stocks or stock funds. But if you plan to retire in less than 10 years, keep one-third of the money in bonds. And if you're ready to retire and need to tap your investments for living expenses, up your bond allocation to 40%, with the remainder in stocks.

If your time horizon is shorter -- say, if you're funding college for your teenage children -- you should be more conservative, stashing at least half of your money in high-quality short- or intermediate-term bonds or bond funds. Through a state plan, the Grabskis prepaid tuition for all of their children at any public college in Virginia.

This article was reported and written by Steven Goldberg for Kiplinger's Personal Finance Magazine
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Stretch Your IRA to Last for Generations
Tax-deferred assets can grow for decades if your heirs don't make mistakes.June 2006
You've built up a nice pile of cash in an IRA, but you don't need the money for your retirement. You want to pass on the account to your kids. If all goes as planned, the assets in this tax-deferred account will continue to grow, perhaps well into their retirement. Even your grandchildren could benefit.


But if you want to stretch your IRA tax shelter to last an extra generation or two, your heirs need to follow some very complex rules. Any slip-up could result in accelerating the cash-out and the tax bill that goes along with it.

To show the potential of the stretch strategy, MFS Investment Management offers this illustration: Dad has $100,000 in a traditional IRA, and dies at age 68. His 58-year-old wife, who doesn't need the money, rolls over the cash into her own IRA. But she doesn't touch it until she's 70 1/2, when the IRS requires her to take annual minimum distributions. (At that age, her distributions can be spread over 27 years.) She dies at 80, having netted, after taxes, $92,820. Her daughter, Anne, who is 50, takes distributions based on her own life expectancy; by the time she dies at 77, she's received net income of $371,971. Anne's son, the grandson of the original owner, pulls out $315,467 over nine years. Total after-tax payout: $780,259 over 46 years.Of course, this scenario is based on a number of assumptions, such as a 6% annual return on the account, 2005 tax rates and heirs who withdraw only the required minimum. "Part of this is having the confidence that your kids won't take out more," says Richard Johnson, an estate-planning lawyer with Waller Lansden Dortch & Davis in Nashville.So it's a good idea to sit down with your heirs and explain the benefits of the stretch -- and the inadvertent ways they could bungle the whole thing. Here's how to make your IRA last for generations.

Roll over your company plan.
If maintaining the tax shelter as long as possible is important to you, roll over any money left in a 401(k) or other company plan into an IRA. (The exception could be if you have a large amount of appreciated company stock. See "Your Questions Answered," April.) Most 401(k) plans force heirs to quickly cash out. Designate your beneficiaries. Whether it's a new IRA or an old one, make sure you name a primary beneficiary, usually your spouse. Also designate contingent beneficiaries, perhaps your children, in case your primary beneficiary dies before you. Or you can name your grandchildren. "They have the longest life expectancy, and the money compounds longer," says Philip Kavesh, an estate-planning lawyer with Kavesh, Minor and Otis in Torrance, Cal. "A 10-year-old's minimum distribution is very small and can go into a custodial account."If you do not designate beneficiaries, your IRA could end up in your estate. That would deny your heirs the chance to tie payouts to their own life expectancies. How fast they must withdraw depends on when you die, says Ed Slott, an IRA expert (www.irahelp.com). If there's no designated beneficiary and you die after 70 1/2, the minimum withdrawal would be based on what would have been your remaining life expectancy. If you die before 70 1/2, your heirs must cash out the entire account by the end of the fifth year following the year of your death.

Educate your spouse.
If a widow younger than 59 1/2 needs the money, she should keep it in her husband's IRA; if she rolled over the money into her own IRA, she would pay a 10% penalty on the early distributions taken before age 59 1/2. But if she continues to keep the money in her husband's account and then dies, the contingent beneficiaries would have to take distributions based on her life expectancy.If she wants her children to be able to take withdrawals over their lifetimes, she has two choices. She can "disclaim" the money, meaning it goes directly to the contingent beneficiaries. Or she can roll over the account into her own IRA. She would then designate beneficiaries, who could take distributions based on their longer life expectancies when she dies.Alert the next generation of the pitfalls. Make sure your spouse and other beneficiaries don't allow an adviser to liquidate the account and cut a check. Your beneficiaries will pay taxes on the distribution and lose the chance for tax-deferred growth.Also, note that only a surviving spouse has the right to roll over an inherited IRA into his or her own account. If your children or any other beneficiary cashes out an account in hopes of doing so, the full amount is taxable. If you have multiple beneficiaries, they may want to split your IRA into several "beneficiary IRAs" after you die. That way, says Vicky Schroebel, an MFS Investment vice-president, "each one can do the stretch the way they want. One may want to take the money and run, while another could allow the balance to grow tax-deferred."But Slott warns that the splitting must be done correctly or the money becomes taxable. "The average bank messes this up," he says. The split must take place by the end of the year after the owner's death. Each new account must be titled "beneficiary account" or "inherited account," and the deceased owner's name must remain on each account. Then the custodian of the IRA must conduct a direct trustee-to-trustee transfer to each beneficiary account.If stretching your IRA tax shelter to the nth degree is your ultimate goal, consider converting your IRA to a Roth. A demand that payouts start at age 70 1/2 doesn't apply to a Roth, so you could let your account grow until death. At that point, your beneficiaries could stretch payouts over their life expectancies and never owe tax on withdrawals.

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Keep Your Wealth in the Family
It's important to get your paperwork in order, and let your kids into the loop.
By Ronaleen Roha
September 2006
Editor's note: This article appears in Kiplinger's special issue Success With Your Money.
Deciding how to leave assets to your heirs can be difficult even for the most agreeable of spouses, as Bud and Jacqui Reinfeld can testify. The Reinfelds have several nieces and nephews they would like to provide for, and when they got down to planning their estates after 35 years of marriage, they figured it would be easy.
And it was, for the most part. Both wanted to make the division as equitable as possible. But when it turned out that Jacqui had already promised their house to one of their nieces, that presented a problem.
To work things out, the Reinfelds, who live in Los Angeles, sought help from Michael Eisenberg, a certified public accountant and financial planner. He helped them draw up a formula that takes into account a possible increase or decrease in the value of the house. “People are amazed at what they don’t know about estate planning,” says Eisenberg. “Once they learn about what they can do, they loosen up a bit.”
Says Bud Reinfeld, “You have to be able to talk to someone who can help you work through the issues.”
Pieces of the plan
As the Reinfelds discovered, an estate plan should be customized to fit your specific goals and circumstances. But every well-crafted plan should include the following pieces:

A will.
Nearly 60% of Americans don’t have a will, according to a survey by Lawyers.com, an online database of lawyers from legal publishers LexisNexis Martindale-Hubbell. A will lets you distribute your assets as you choose. The person you name to be your executor or personal representative will gather your assets after your death, handle any probate proceedings and ultimately distribute your assets to your heirs or trustees.

A durable power of attorney for financial matters.
Only 26% of those surveyed by Lawyers.com have this valuable document, which names someone to handle your financial affairs if you are unable to do so. A durable power of attorney can go into effect as soon as it is signed. But most states permit a “springing” power that takes effect only if you become incapacitated.

A living will and a durable power of attorney for health care.
A health-care power of attorney names someone to make health-care decisions on your behalf if you can’t. It applies even if you’re temporarily incapacitated, by an auto accident, for example. A living will spells out your wishes regarding life-sustaining treatment. It generally takes effect only if you become terminally ill and can’t speak for yourself, or if you are in a persistent vegetative state.
Despite the publicity generated by the case of Terri Schiavo, the Florida woman whose husband and family battled over her treatment after she had been in a persistent vegetative state for 13 years, fewer than 30% of Americans have drafted these documents.

A review of beneficiary designations.
Beneficiary designations on assets such as life-insurance policies and IRAs can foil a great estate plan if they contradict other provisions in the plan. Beneficiary designations always take precedence.
Some estate plans include additional documents, such as a revocable living trust. You create a living trust and transfer ownership of your assets to it during your lifetime. You can generally be your own trustee and name a successor to take over if you can’t manage your own affairs. Because the trust is revocable, you have the option of changing or even ending it at any time.
You still need a will, however, to name a guardian for minor children or to direct that any of your assets that did not get transferred to the trust during your lifetime be “poured over” into it after your death.
All of the assets you put in a living trust before your death avoid probate, which is the legal process for gathering your assets after death, paying your debts and distributing the property to your heirs. But a living trust does not help you save on income taxes; you continue to pay income tax on the trust’s earnings on your personal Form 1040. The assets are also part of your taxable estate.
Midlife checkup
Although everyone should have a basic estate plan that includes a will, specific issues take on special importance at certain points in your life. In particular, midlife couples should:
Pin down durable powers of attorney for financial matters and health care, plus living wills. Create an emergency plan in case a caregiver spouse becomes ill.
Review your pension plan to make sure your spouse understands all of the provisions.
If you own a vacation home in another state, consider putting it into a revocable living trust so that your heirs can avoid probate in that state.
Look into buying long-term-care insurance.
Speak up
Whatever provisions you make in your estate plan, it’s best to tell family members your intentions. It’s better to prepare them now than to surprise them later, especially if you don’t plan to divide your assets equally among members of your family.
And it’s important to update your estate plan to reflect changes in your family’s circumstances. When Carolyn Roberts got divorced 30 years ago, she wrote a will specifying that all of her assets were to be put in trust for her three children, then ages 7, 5 and 3, until they reached age 21, with her brother as trustee.
Twenty years later, she remarried. Her new husband, Laurence Roberts, also had three grown children. At the time, Larry had built up savings and was close to paying off the house he had owned for 17 years. Carolyn had little savings and little equity in her co-op apartment. When they wrote their wills, Larry left his assets to his children, and Carolyn left her property to her kids.
Because of Carolyn’s unhappy experience in her first marriage, she and Larry specified that should any of their children die before they did, the inheritance would go to the grandchildren rather than to the child’s spouse. One of Carolyn’s children would be co-executor with Larry if anything happened to her; one of Larry’s children would be co-executor with Carolyn if anything happened to him.
After Carolyn and Larry were married for a decade, they decided to redo their wills. They have built up savings together and recently bought a bigger house, which Carolyn renovated to include a huge basement playroom for their grandchildren, in Livonia, Mich. This time they decided to split things evenly among all of their children. But even though their children are now grown, Carolyn and Larry attached strings to their plan. “If somebody is in financial trouble, is being sued or has drug or alcohol problems, the executors will hold off on giving them their inheritance,” says Carolyn.
Hire a lawyer?
If your needs are simple, a do-it-yourself software program, such as Quicken WillMaker Plus 2007 ($50 on CD, $40 as a download from http://www.nolo.com/), may be all you need. However, if you have children from more than one marriage, have a spouse or child who is disabled, own a business, are a partner in an unmarried couple or have enough assets to run afoul of the federal estate tax, you should get expert help from a lawyer who specializes in estate planning.
Fees vary widely, depending on your situation and where you live. Relatively simple wills for a married couple—including trusts for children, durable powers of attorney, a living will and a review of all beneficiary designations—might cost less than $500. Drafting a separate revocable living trust might add $1,000 to $1,500 to the tab, and planning to minimize the estate tax is likely to cost even more.
You can find an estate-planning lawyer through the American College of Trust and Estate Counsel (http://www.actec.org/) or at http://www.lawyers.com/.