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Scenario: I’m a sixty-seven year old widow in good health, but there is a family history of both heart disease and cancer. I live alone in my house which is paid for and is worth about $200,000. I have a checking account I keep about $10,000 in at all times, monthly social security checks of $2,000, a monthly pension checks as a retired teacher of $2,000, a money market account with about $1 million (an inheritance from my deceased sister), a couple of CDs, $50,000 each, some GM stock worth about $100,000 and an IRA with about $400,000 (rolled over from my deceased husband’s job). I also have a couple of mineral leases that I receive small monthly checks from, but I understand that the oil company plans to drill more wells. I also own a Cadillac which I drive to church, several bridge games every week, and to do my personal errands. I like to travel and take two vacations per year. I want everything to go equally to my two wonderful adult children who are married. Each of my children have three children so I have six grandchildren.
Question: What kind of estate planning would you suggest?
Opinion: First, we have to look at the size of the estate to see if there are estate tax considerations as well as the kinds of assets you own. In your case, you don’t have an estate that exceeds $2 million. If your estate exceeds $2 million in 2008 ($3.5 million in 2009), you would have a federal estate tax exposure and would have to plan on how to reduce or avoid estate tax. Next, we have to determine what kind of estate planning documents to prepare. You can distribute your estate to your children through a written will, but that will have to go through a court probate proceeding and approved by a judge. That is an expensive (attorneys fees and court costs) and time consuming process. We recommend that you put in place a revocable living trust where you serve as your own trustee of your assets during your life and use your assets as you wish and then make your children successor co-trustees of your who will distribute the remaining assets to themselves equally. Should either of your children predecease you, you can provide that the deceased child’s share be distributed to his or her children in equal shares. You will also need a financial power of attorney to carry on your personal business in case you become incapacitated and a healthcare power of attorney to make long-term medical decisions for you if you have a serious medical problem down the line. You cannot put an IRA into a trust so you will want to designate beneficiaries on your IRA papers. You will have to transfer title to your assets into the trust by changing documents of title from yourself as an individual to yourself as trustee of your trust, but this is not a difficult process.
Action: Hire a good estate planning attorney to evaluate your estate and prepare the correct papers to put a proper estate plan into place to meet the needs of your particular circumstances.
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