There’s one phenomenon the wealthiest person who has ever lived has in common with the very poorest. At the moment of bodily death, everything they own of the physical, material world stays behind, even the shirts on their backs! It is a cruel, inescapable reality that a person may sacrifice much to get ahead in life, but none of it goes with him or her.
If you’re like me, you will want the tangible results of your life’s success to pass untouched to the ones you love. There are ways to protect your estate so that as little of it as possible is siphoned off by third-party intruders.
Joint assets. This involves a trust factor, but it can be an effective way to preserve an asset for a loved one. Many elderly people set up a joint bank account with a child to simplify the bill-paying process in the event they become mentally or physically incapacitated. Some may even put their loved one’s name on the deed of their most valuable asset, their house, so that this property will pass automatically to their designate. This works well for the person who has only one or two children. If there are more, the sparks may fly!
Set up a trust. The word trust sounds intimidating, but an individual can create one (for a fee, of course) to incorporate his or her personal assets. Trust agreements can be made revocable so that you aren’t locked into the agreement if you (while still legally capable) change your mind at a future date. The assets within the trust agreement will eventually become the responsibility of your designated trustees. Those assets will be excluded from will probation.
Write a will. Wills are your way to communicate from the dead. Though most significant assets can be included in a trust, there are some items that are simply better listed in the appendix to a will – such as your sterling silverware set or mint Beatles album autographed by the band. If you want your nephew to receive that Beatles’ album after your death, the appendix to your will is your chance to tell everyone so. You may have a favorite charity that you want to receive a portion of your estate. Spell it out as heirs can be uncharacteristically miserly when it comes to sharing their inheritances! You can select an executor for your will – either a family member or a law professional. Some choose the law professional because depending on the complexity of the estate, it can be a big and thankless job – making sure all debts and taxes are paid, closing accounts, notifying government agencies, distributing assets specified in the will according to the deceased’s instructions.
A living will (or advance directive) is primarily a guide for what type of medical intervention you want to be employed to save your life. Being able to refer to a living will can be a blessing for your loved ones, especially if you become dependent on life support for physical survival.
Designate your Power of Attorneys for health care and finance. Whom you choose can be extremely important to you, while you are still alive. It goes without saying that you should choose someone you trust. None of us likes the idea of becoming incapacitated in this life, but it happens – sometimes due to an accident, sometimes due to natural decline. Your Power of Attorney can, if you are declared incapable of making your own decisions, take over your role of decision-maker for your life. He or she is required to act in your best interest, but your concept of your best interest and his or hers may differ! However, he or she may need to act decisively to protect your assets – and your physical well-being. If the your P.O.A. is also your heir (and quite often POA’s are family members), he or she will be sure to preserve that all-important inheritance you have worked so hard to protect.
Move to a different state. A few states have their own separate inheritance taxes, most don’t. The federal government exemption is safe for most of us at $5 plus million. And the states that do impose them generally start with a $1-million exemption.