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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

Protect Your Family's Future with Estate Planning

Most people avoid spending money unnecessarily and dislike giving up control over the assets they've worked hard to acquire. Yet that is exactly what happens when you don't develop an estate plan.

According to the New Jersey Society of Certified Public Accountants (NJSCPA), the pitfalls associated with not planning your estate are serious: you could lose control of who receives your assets, your estate could end up paying additional administrative costs, and you can miss out on opportunities to lower estate taxes. Taking the following measures can help ensure that your assets are managed in a way that serves you and your family well.

Write A Will
Simply speaking, a will is a legal document that dictates how you want your property and personal affairs handled after your death. If you die without a will, typically, state law steps in and distributes your property according to default provisions.

Your will is also the document you use to designate a guardian for your children should both you and your spouse die together. If you don't state your intentions, a state court will determine who will be responsible for your child's emotional and physical well-being. Appointing the right guardian is critical. But before you actually name a guardian, sit down with that person and explain your intention and the financial resources in place for your children's benefit. Allow the person time to make a well-considered decision to accept this major responsibility.

The executor(s) you name in your will controls all the legal and financial decisions associated with settling your estate. Depending upon the size and complexity of your estate, this can be a major responsibility. That's why it's important to get the consent of the person you designate. Most married people name their spouses, but you should think about whether taking on the role of executor may be too much of a burden for your spouse. Also consider if your spouse has the necessary financial knowledge. In all cases, it is wise to name alternate executors in the event that your first or second choices are unwilling or unable to carry out the executor's responsibilities when the time comes.

Prepare A Durable Power Of Attorney
A power of attorney is a document that authorizes someone other than yourself (an agent) to handle your business or financial affairs if you are unable to do so. However, because general powers of attorney expire if you become mentally disabled, a better solution is a durable power of attorney. Unlike a general power of attorney, a durable power of attorney continues even if you become mentally incompetent. You can make the provisions you grant to your agent as broad or as specific as you like.

Establish A Living Will
A living will, or advance healthcare directive, is a document drawn up while you are still alive, in which you specify, in advance, the type and extent of care you want to receive if you have a long-term illness or terminal condition. Typically, a living will includes a durable power of attorney for healthcare, which designates someone you trust to make healthcare decisions in the event you cannot make them yourself. If you're opposed to having extraordinary measures used to keep you alive, signing a living will relieves your loved ones of the burden of making this agonizing decision for you.

Reduce Taxes
While the actual value of your estate only can be computed upon your death, you should estimate the size of your estate to determine the extent to which any taxes may be due. For 2001, the amount of property you can transfer estate tax free is $675,000. That amount will increase to $1 million by 2006. Federal estate tax rates on amounts over the current limit start at 37 percent and rise to 55 percent.

One way to reduce estate taxes is to begin giving away property while you are alive. Another method is to establish certain types of trusts, such as an AB trust, life insurance trust, or charitable trust. Bear in mind that these are complex documents that require professional advice.

Revisit Your Estate Plan
Finally, CPAs stress the importance of reviewing your estate plan every few years, especially after a major life change such as a birth, death, divorce, a move to another state, or when tax laws change.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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