Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

DON'T WAIT UNTIL THE LAST MINUTE FOR ESTATE PLANNING
(11/3/02)

For too many of us, estate planning is something we put off until the last minute. For some, the last minute may be far closer than we know.

Unfortunately, when death comes unexpectedly, it's your family and loved ones who must find their way through the labyrinth of legal papers, assets, debts and details involved in probating an estate.

Several years ago a father died without a Will or estate plan and his children and sister fought over everything. They consumed over 25% of the estate on probate and related expenses.

If you don't have an estate plan, you still have time to get your estate in order if you focus on a few key actions.

Annual Gifts

Your first $1 Million is exempt from federal estate tax in 2002 and 2003. Everything over $1 Million is heavily taxed. The highest tax rate is 50%. This would make a significant dent in what you leave behind for your heirs.

If you have a large estate and an unexpected illness or injury overtakes you, move as much money out of your estate as possible. Make annual gifts of up to $11,000 to as many friends and family members as you want. If your spouse joins in these gifts, you can give up to $22,000 per person per year.

Execute an Estate Plan

If you're still competent, establish a Will or Trust even if you are on your death bed. Your attorney will prepare the documents for signature and your witnesses and doctor will certify you understood what you were doing when you executed them.

Don't try to write out your own Will. You want your Will to be as complete as possible to avoid questions about your competence to execute it.

Remove Other Assets from Your Estate

Don't forget about your life insurance. If you own it, it is included in your taxable estate.

When I meet with new clients and ask them the size of their estate, many fail to mention their insurance policies. Just think, if you own a home worth $250,000, a farm worth another $250,000, and have a $500,000 life insurance policy, you've reached the $1 Million limit without even considering bank accounts, investments, automobiles, and other property.

You can keep your life insurance policy out of your estate simply by changing ownership. If you die within three years after you transfer ownership, however, the value of the policy will be brought back into your estate. For this reason, the sooner you can make the change, the better.

If you've been diagnosed with a terminal illness and given 6 months to live, you should still consider changing ownership of your policies. I know a person who was given three months to live who is still going strong some eight years later. Medical science and the power of prayer can do wondrous things. If you die before the three year period is up, you haven't lost anything. If you survive the full three years, you will have reduced the size of your estate significantly.

While you're at it, check your beneficiary designation. Time and again I've seen policies with beneficiaries who have been dead for years. I knew someone who bought an insurance policy when he was 18 and named his mother as his beneficiary. He married and divorced three times and had seven children. His mother died and he died shortly thereafter, single and without a Will. His last ex-wife agreed to administer his estate and I'm not sure she has figured out who gets the insurance proceeds yet. All he had to do was fill out a simple change of beneficiary form and the problem could have been avoided.

The same applies to bank accounts, investments and retirement accounts. Many people set up accounts with "payable on death" (POD) designees and forget about them. This can make for strange and interesting distributions if the beneficiary designations remain unchanged for many years.

Ownership of Real-estate

Your largest asset may be your home. What happens if one or more of your children doesn't want to sell the home after you're gone. How will your estate be divided up among them?

In Oklahoma, many homes are owned in "Joint Tenancy with Right of Survivorship" often to avoid probate. Unless the joint tenant is your spouse, this can cause more problems than it solves. What if the property is held in joint tenancy with one of your children and her spouse files for divorce? Or she's sued? Even worse, what if the joint tenancy is with your non-traditional partner (you're living together without benefit of marriage)? If you paid for the home and your children challenge its disposition, your partner may not be able to establish a legal claim.

If you discover you only have a short time to live and don't want to establish a Trust, you might want to transfer your property to a "tenancy in common" by which each of you owns a separate one-half interest in the property. At your death, your friend already owns half without further legal ado and if your Will transfers your half interest to her (or him), as well, she will own it all. This is a much safer arrangement than leaving property in joint tenancy.

Conclusion

If you don't have an estate plan, contact an estate planning attorney who can assess your situation and help ensure your estate passes as you want with the lowest possible tax and least possible administrative expense.

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