Estate Planning It's Not Just for the Wealthy

Your estate might not be the biggest in Texas, but it’s worth the world to you. Protect it and your heirs by putting a well-considered estate plan in place.

If you think estate planning is just for the wealthy, then, as my mother says, you’ve got another thing coming. Yes, estate planning is critical for those who have sizeable financial assets. If you are worth millions, your heirs could face some federal tax consequences. In these cases, estate planning to minimize Uncle Sam’s take is doubly important. But even if your net worth lets you off the tax hook, estate planning still is critical. Everyone has assets and, regardless of their strict financial worth, most of your possessions probably have significant value to you and those you care about. Everything you own is part of your estate, from your home to your car to your great-grandmother’s china that’s been passed from generation to generation. To ensure that dishware goes to the next family member who will take care of it in the way you wish, you need to have an effective estate plan in place.

Here’s how to get started.

Take Inventory You might be much richer than you know. Keep in mind that all of your assets are included in your estate. When you add up the value of your home, investments, retirement savings and any personal items you own, you may be surprised at the value of your estate.

“You have to look at everything,” said Sandra Newman, financial advisor and owner of REAP Financial Group in Austin. “Even life insurance proceeds count, so there’s more than people might be aware of.” The only way to determine your true wealth is to inventory everything you own and assign a value to each item. The following list can help you get started, but feel free to add some categories and delete others as fits your needs: . Residence . Other real estate . Savings, for example, savings accounts, CDs and money market accounts . Investments, for example, stocks, bonds and mutual funds . Pension and/or other retirement accounts, for example, 401(k) and IRA . Life insurance policies and annuities . Ownership interest in a business . Motor vehicles, for example, cars, boats, motorcycles and planes . Jewelry . Collectibles, for example, art and antiques . Other personal property Depending upon your specific situation, you may need professional advice to determine realistic values. If you have antiques or jewelry, it’s probably worthwhile to hire an appraiser. Similarly, ask a real estate professional for advice on determining the value of your home or other properties. Once you’ve estimated the value of all your assets, you’re ready to do some planning.

Why You Need a Will Everyone is familiar with a will, the legal document that designates the transfer of your property and assets. Creating a will is not a difficult process, but about half of all Americans die without one. If you die without a will, or intestate, the court steps in and distributes your property according to the laws of your state. As much as you love Texas, do you really think that a Lone Star judge can know how you want your property distributed? If you have remarried and have no will, your great-grandmother’s china we talked about earlier could go to your second husband instead of the daughter you wanted to have it. So start with a will. Do-it-yourself kits work fine for many people. But if you have a lot of property or a large family, it might be well worth it to hire an attorney. Plus, your lawyer will be aware of specific state laws that could affect your last wishes.

Consider the Kids Having a will is especially important if you have young children, because it gives you the opportunity to designate a guardian. Without your wishes in a will, the court will appoint a guardian. Again, do you really want your older sister instead of your younger one raising your kids? Before naming a guardian, talk to the person you’d like to care for your children to make sure he or she is okay to assume the responsibility. Name an alternate guardian as well, who can take over if the primary guardian is unable or unwilling to fulfill the task. And avoid naming a couple as co-guardians. The pair might one day go their separate ways, which could lead to a custody battle.

Minimizing Taxes The last thing you want is the IRS instead of your heirs to get the bulk of your assets. For most folks, that’s not a problem. The current federal estate tax law exempts estates of less than $3.5 million. Amounts in excess of that are taxed at a maximum 45% rate. Estate tax laws, however, are in flux. Next year, the tax is eliminated. But that’s for 2010 only. Unless Congress acts, the estate tax will return in 2011 with a $1 million exemption. It is likely, however, that lawmakers will work out a longer-term compromise that will take effect in 2010, both to prevent the return of a tougher estate tax in 2011, as well as enable the IRS to continue collecting some estate money. If you find your assets are large enough to be affected by estate taxes or nearing the exemption amount, consult a financial planner or attorney who specializes in estate planning. They can help you implement strategies to minimize any final tax bite.

Other Estate Issues In addition to dealing with potential taxes, a good estate plan also should take into account other concerns. Appoint a medical power of attorney, a person to act on your behalf regarding treatments if you’re unable to make your own care decisions. Along those same lines, have a living will that allows you to designate whether you want to remain on life support and under what conditions. From the financial standpoint, give a trusted friend or family member durable power of attorney. That person then can take care of financial tasks that you are unable to carry out.