How to Plan Your Estate

From castle to condo, your home (together with other assets) is your
estate. And as with any asset you own, you have to protect it from
taxes, legal claims and other creatures of the night. The best way to
do that is by crafting an estate plan that enables you to plan the distribution
of your financial assets while you're still alive and kicking, so
that after you die, your estate passes on to the people you choose--
not to whomever a probate court judge chooses.

Difficulty: Moderate

Instructions

1. Before you launch your estate-planning campaign, take a financial inventory of all your assets--including real-estate and investment holdings, life insurance, household items, bank accounts--and create a record (see 241 Plan for Retirement). Keep a copy of your financial documents in a secure place, like a home safe or a safe-deposit box.

2. Create a net worth statement and update it each year. The statement shows a detailed list of what your assets are, where they are located, and their current value. Create a will and/or living trust to make life much easier for your survivors after you die. Passing on without a will (termed "in testate") spells trouble for those left behind: It can boost legal costs, trigger family squabbles, and leave your loved ones with no control over your assets. Drafting a well-designed power-of-attorney document is also a good idea. See 243 Create a Living Trust, 244 Make a Will and 245 Execute a Power of Attorney.

3. Read 295 Make Your Final Arrangements. Be candid with your family and professional advisers. Keep them in the loop as you plan your estate. Don't assume they'll know how you want your estate distributed.

4. Organize and file key financial documents, such as house deeds, insurance policies and investment documents. Make sure that someone--your spouse, a lawyer, a financial adviser--knows where they are. See 232 Organize Important Documents.

5. Review and update your life-insurance program regularly. Far and away, life insurance is the most cost-effective way to create the cash to pay bills and provide income. (Many insurance policies are "whole life" policies or are packaged in the form of annuities, and can generate investment income that bears watching. See 236 Buy Life Insurance.) If you have an insurance policy, make sure to name both a primary and a contingent beneficiary. Failure to do so could slow payment of insurance money due to your estate.

6. Arrange for legal, accounting and financial advisers to help your surviving family members manage your assets and do postmortem tax planning.

Tips & Warnings

• Consult a financial adviser or estate-planning attorney.
• Note that federal IRS estateplanning tax exemptions will rise from $1.5 million in 2004 to $3.5 million in 2009.
• Keep some assets liquid (easily transferable to cash) so your family has cash immediately available to pay bills upon your death.
• Reduce your estate-planning tax burden by gifting up to $11,000 (or $22,000 with your spouse) to any individual you choose on an annual basis. The gift is tax-free and you can gift as many people as you want each year.
• Also draft an income statement showing all current income sources and a list of the types of income and amounts that will continue after your death. File it along with a copy of your will.
• If you don't keep estateplanning paperwork up to date, you leave yourself liable to expired insurance or other financial calamities.