How to plan your estate – begin with the end in mind
As you begin to form or review your estate plan, think hard about what you want at this point in your life.
Often a skillful planner can help reveal really important aspects that may otherwise escape you, to your wealth’s peril. It is, after all, your property.
Before plotting out tax schemes, spend some time thinking about just who and how you want your property to pass.
How much of your estate to your spouse?
Do you want your spouse to get everything – or at least the use of it – for the balance of their life? If not, you should know that it is virtually impossible to disinherit your spouse without some sort of pre/post nuptial agreement. In most states, the spouse is entitled to at least a 1/3 of the marital property – that which is built up by the couple during the marriage (excluding inheritances or property owned by one spouse before the current marriage), and can mount a successful challenge to your will if you try and leave them less than that.
Tread carefully if your spouse is not the object of most of your wealth.
But most of us do want to provide for our partner for the balance of their lifetime, even if we wish for children from a previous marriage to ultimately get the assets.
How much of your estate to your children and other heirs?
Who else, and how else, do you want the money to flow? All to kids? Your assets to your kids, and his assets to his kids, when you are both finally dead? Beloved nieces and nephews? Parents? Siblings? Charity? First set down these dispositive goals, then look for tax-effective ways to achieve them. Also consider if you are willing to live a bit less well in order to maximize your estate, or if you prefer to leave them what’s left (if anything) after you have thoroughly enjoyed your retirement.
Estate planning, like all financial planning, is a fluid thing. What is important and appropriate now will become less so if you live another decade or two. At least look at it, even if you don’t do (or need) a complete update, every five years or so.
What is probate and why you should avoid probate
Probate is basically the legal process of figuring out who should get your stuff when you die. It is a legal process, with a judge, and a public record of the proceedings which includes a list of your stuff and a copy of your will, hanging in the courthouse-wind for all who care to see. If you have a will, it is basically an instruction sheet to the judge, describing your intentions for your assets.
Executor/Executrix or Personal Representative
In it you name your executor (if a woman, executrix), which in some states is called your personal representative. This is the person charged with carrying out the provisions of your will. You should name successors in case you outlive the first choice, and you should know that the job involves a lot of work and liability, so specific arrangements to pay them in the will would be nice and avoid squabbles among the children.
If the will is a legal one – prepared in accordance with the requirements of your state – the judge will distribute according to it unless someone can successfully invalidate it, which is rare.
Spouse’s right to partially invalidate or “take against the will”
If you try to trash your spouse, for instance, she may “take against the will” and thereby receive her legally mandated one third (or so, depending on the state), with the balance pretty much flowing as you instructed.
Last will and testament means most recent one
Since our intentions change with time, the term “last will” simply means the most recent one.
Dying intestate: does the state get your money?
If you die without a will – they call it “intestate”, your property does not automatically go to the state! Rather it follows a “next of kin” hierarchy, usually with spouse and kids first, then parents, then siblings, and finally the state only if a long string of relatives can’t be found.
But the state’s formula may not be what you want – you may prefer that nothing go to your child who stole your diamonds and defected to Cuba – and you should have at least a simple will regardless. If you want to specifically disinherit somebody, by the way, you should state in your will: “to my son Fidel Littlebucks, nothing”. If you just leave his name out, it may be ruled an oversight on your part (and you won’t be in probate court to argue otherwise), and he may be cut in.