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Judy Loy: The Basics of Estate Planning

by on October 07, 2012 6:00 AM

In Nov. 2011, there was much speculation in the media regarding Joe Paterno’s sale of his portion of the family home to his wife for $1 in July of that year. There was much fodder that he was trying to protect assets in the event of a lawsuit when in reality he was likely taking the advice of estate attorneys and planning. Paterno at that point knew he was ill and wanted to make smart financial decisions for his family.

Estate planning can be a touchy topic to have with parents, family members or even yourself. Yet, as with any financial planning, it is vital to plan ahead for the unexpected and to make sure your goals are met. Before we start, I want to begin by saying I am not an attorney or an expert on estate planning and I regularly refer clients to and work with their estate attorneys to build a good estate plan. When forming an estate plan, a qualified attorney is a vital part of the equation. The simplest starting point to estate planning is to get a referral for a good attorney, who can help draft a will, draw up powers of attorney and even create trusts in the right situations.

I don’t suggest creating a will online or through generic software due to the intricacies and unusual needs of each person or couple. For instance, our attorney discovered that we had pets that we wanted taken care of if something happened to us. The couple we chose not only gets our pets, but money to care for them through our will. This is not something we would have thought of ourselves.

Once someone is over 18, they may want to consider having a durable power of attorney, which is a form that names someone to manage your property for you in case you become incapacitated. A living will is also a consideration so that your wishes are known to those around you. Being an adult leads to the need for adult decisions.

It is also vital for unmarried couples who are life partners to create a will so that assets go to their significant others. State estate laws do not recognize unmarried couples as being part of the inheritance chain. Your wishes need to be written out and documented.

Another important part of tax planning is designating and/or updating the beneficiaries on your retirement accounts and/or life insurance. Named beneficiaries on these accounts supersede a written will. Therefore, if you remarry, have another child or adopt, you may wish to review the people that you name on these specific accounts. Something key to note here is that spousal beneficiaries get special treatment when inheriting a retirement account (IRA, 401(k), etc.): they may make the account their own IRA. Non-spousal beneficiaries on retirement accounts must make distributions after they inherit. Thus, a spouse typically gets a better tax benefit, allowing the assets to remain tax-deferred until retirement.

Having a will and other estate planning tools is great but one thing people miss in the equation is that your surviving loved ones need to be able to find these papers. A Family Emergency Workbook can work wonders to help your family or friends after you are gone.

Basically, it lists the professionals that you work with: attorneys, financial advisors, banks, etc. It references loans and assets and where your safe deposit box, home safe and even lockers are located. You can use a simple piece of paper or a letter, whatever works best for you. Write down all your information, locations, etc. so those you leave behind can easily find things after you are gone. Give the sheet to the person that you picked as your executor and refresh the information every year. This way everything is up to date for changes.

One last note on estate planning: the end of 2012 marks the end to some major tax advantages in estate planning. Currently, estate assets at or below $5,120,000 are effectively exempt from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 35 percent. This asset cap drops to $1 million in 2013. More and more people will need specific estate planning tools because of the lower amount.

For the well-being of those you leave behind and more importantly, for your own peace of mind, open up the conversation with your loved ones, discuss, review your options and start estate planning.

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Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at jloy@nestlerode.com.
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