Estate Planning Is Important for Women

By Bob Goldberg, Estate Planning Attorney

Estate planning is definitely important to both sexes. But, failing to plan often hurts woman. This is because 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 if you are a woman, estate planning is a crucial part of retirement planning. And since women 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 If You Become Disabled Should Be No. 1

A key aspect of estate planning is appointing a person you completely trust to act for you in financial and legal matters in case you can’t (even temporarily) do so, because of illness or disability. You name 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. You Don’t Have To Be Rich To Have An Estate – Everyone Has One

Even if you’re not wealthy, you have an estate and should plan. An estate is everything you own at the time of your death, 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 Are Not The Same

Both can be used to transfer assets after you die, but each is unique. 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 become effective until you die, is used to name guardians for children who are minors, create trusts that kick in after death and cover assets you haven’t put into a living trust.

4. You Do Not Have To Be Rich To Have A Trust

Even if you aren’t super rich, a trust is sometimes the best way to achieve your goals. It can safeguard your when you are not 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 turn 21); and prevent your money from being foolishly spent by spendthrift family members. A trust can also protect the property your worked so hard for 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 are 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 an insurance 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 Important

Distribution of retirement accounts at your death will not happen according to your will or trust. Instead, retirement accounts will be distributed according to beneficiary designation forms filed with the bank or financial institution (the custodian) holding your account. With an IRA, you 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 need to 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.

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