Nine Things Women Should Know About Estate Planning (Forbes article)
Estate Planning Is A Women’s Issue
While important to both sexes, estate planning often affects women more profoundly. Women live longer on average and tend to marry older spouses, making them three times as likely as men to be widowed at 65. So for women, estate planning is a crucial part of retirement planning. And since they usually survive their spouses, women more often have the last word about how much wealth goes to family, charity or the taxman.
1. Caring For Yourself Is No. 1
A key aspect of estate planning is appointing someone you trust to act on your behalf in financial and legal matters in case you can’t (even temporarily) do so, because of illness or disability. You designate this person in a “durable power of attorney.” This is separate from a living will, which expresses your preferences about end-of-life care, and a health care proxy (or health care power of attorney), which authorizes someone to make medical decisions for you.
2. Everyone Has An Estate
Even if you’re not wealthy, you have an estate and need a plan. An estate is everything you own when you die, including your home, personal property, investments, bank accounts, retirement plans and any interests in a family business or partnership. If you don’t have a will or living trust indicating who should get those assets, state law determines it for you.
3. A Will and Living Trust Aren’t The Same
Both can be used to transfer assets after you die, but each has other unique uses. A living trust, which can take effect during life or at death, may also hold assets for your benefit while you are alive–for example, in case of dementia. A will, which does not take effect until death, is used to name guardians for children who are minors, create trusts that kick in after death and cover assets that you haven’t put into a living trust.
4. Trusts Aren’t Only For the Rich
Even if you aren’t super rich, a trust is sometimes the best way to achieve your goals. It can safeguard your assets should you no longer be able to handle your affairs, provide for children from a previous marriage, hold money for minors (ensuring they can’t spend it all the minute they reach majority); and prevent funds from being eroded by spendthrift family members. A trust can also protect assets from creditors and former spouses, whether yours or those of your heirs.
5. Spouses Get Special Tax Breaks
Assets inherited or received as gifts from a spouse are not taxed. This is called the “unlimited marital deduction.” Starting in 2011, a surviving spouse can also add any unused estate tax exclusion of the just deceased spouse to her own $5 million exclusion. This is called portability. So a widow can pass on as much as $10 million, untaxed, through either lifetime gifts or her will. Note: If your spouse is not a U.S. citizen, the marital deduction is much more limited and portability does not apply.
6. Tax Planning For Widows Is Harder
For most married couples, the primary goal is to leave each other well provided for financially. After the first spouse dies, tax saving strategies become more important, especially since the biggest break–the unlimited marital deduction–no longer applies. But there are a variety of simple ways to save taxes while achieving other goals, like subsidizing family members who are less fortunate, educating children and grandchildren and preserving retirement assets.
7. Don’t Own Your Insurance
If you die owning a policy on your own life, it’s like giving away money to the government, since the proceeds could be subject to estate tax. One way to avoid that result is to designate the family member who will receive the proceeds (say, an adult child) as the owner of the policy. Another is to set up an irrevocable life insurance trust. Typically the ILIT buys the policy and, when you die, holds the proceeds for whomever you’ve named as beneficiaries.
8. Beneficiary Forms Are Key
Retirement accounts are distributed according to beneficiary designation forms filed with the bank or financial institution (the custodian) holding your account. With an IRA, you can readily name any beneficiaries you want, including friends, family members, a trust or charity. For a 401(k) or other workplace plan, you must get your spouse’s written permission to leave it to anyone else. To change a beneficiary–for example, if you get divorced or your spouse dies–make sure to file an amended form.
9. Cash Is Crucial
Couples who commingle money should make sure there is enough to cover immediate expenses if one of them suddenly passes away. These funds can be held in each of your separate accounts or in a joint one. Just be aware that when you die, your spouse or partner will probably not have access to your individual account right away. A better approach is to maintain a joint account designated for emergencies that can also be available for this purpose.