CENTS AND SENSIBILITY
All our lives, we plan. Some of the things we plan, such as what to have for dinner or the route we'll take to work, are so trivial they require little thought. Other things, such as a family vacation or purchasing a new home, require a great deal of thought. All day, every day, we plan. Yet, many of us fail to plan for one of the most important tasks of all -- what will happen to our possessions once we're gone. It’s just one more plan
By Guy Steele
gsteele2@pixi.comHere are some steps you should consider:
>> Reduce your probate estate.
Probate is a process in which the courts carry out the provisions of your will. Your probate estate includes all assets titled in your name when you die: It does not include life insurance policies or jointly owned assets. Probate typically takes nine months to two years to complete and can cost between 2 percent and 5 percent of the value of the estate. In addition, probate records are public records, so anyone can access this information. Although it may be impossible to avoid probate entirely, you may be able to keep the majority of your estate from probate and, thus, simplify things for your heirs.
>> Determine your taxable estate.
It's important to distinguish between your probate estate and your taxable estate. Your taxable estate consists of the value of your gross estate (the fair market value of all your assets), less any deductions. The estate tax is imposed by the U.S. government on the assets or property you transfer to others when you die. The Tax Relief Act of 2001 has lowered estate tax rates, but they can still take a hefty chunk out of your estate.
>> Take advantage of estate-tax exemptions.
Under the current law, you can transfer up to $1 million in assets free of federal estate taxes upon your death. The amount of the exemption is increased to $3.5 million prior to repeal of the estate tax in 2010. Learn how you can maximize these exemptions.
>> Hope for the best, but plan for the worst.
No one likes to think about the possibility, but what if you become unable to manage your affairs? A durable power of attorney allows you to designate who will manage your financial affairs should this happen. This person is known as your attorney-in-fact. In addition to a durable power of attorney, consider establishing a health care directive, or proxy. This allows someone to make certain health-care decisions for you if you are unable to do so yourself.