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Estate planning matters women, and men, should know about, P.1

In a recent post entitled “Women and estate planning,” we looked at an article written by Deborah Jacobs of Forbes online. The article was about the need for women to become more involved in the estate planning process, not help in the work of planning for the family’s future, but also for their own sake. The fact is that women are more likely to see the effects of poor planning than men. And even when the planning is thorough, it isn’t always in women’s favor.

In her most recent article, Ms. Jacobs presents a list of estate planning items that every woman should be familiar with. In our estimation, not only women but everybody should be aware of these things.

The first item on the list is the difference between a will and a living trust. Both wills and living trusts are used to transfer assets, but it should be kept in mind that each has unique properties. For instance, a living trust is able to hold assets during your lifetime, but a will only takes effect at death. On the other hand, trusts cannot appoint guardians, only wills can.

Living trusts have many advantages. They can be used to avoid probate or limit probate costs, it is harder to challenge a trust than a will, and trusts are not public documents, so they better avoid publicity. Living trusts also allow real estate contained in other states to be probated in the state of the trustor’s primary residence.

One common misconception is that living trusts which are revocable bypass estate taxes. That is not true. It is important to understand the unique advantages and disadvantages of each of these vehicles.

The second item on the list is the durable power of attorney. These documents are important, as they are necessary for a trusted person to make financial and legal decisions on your behalf if you become incompetent to do so. Picking the right person is critical. The best person is usually a close family member who lives nearby.

Appointing a guardian is often the most important part of an estate plan for many parents. It is important to keep in mind several things in regard to selecting guardians. Formalizing the agreement is important, as is ensuring there are sufficient funds to care for the children if tragedy strikes. Failing to formalize the agreement will force a court to appoint a guardian, which could lead to custody battles between family members. In some unfortunate cases, nobody will step up.

A number of considerations go into who specifically is selected for the job. Lifestyle and values, relocation, ease of transition to the prospective guardian’s household, ability to keep all the children together, and previous rapport are all factors to consider. In terms of finances, some people choose to put different people in charge of legal and financial matters regarding the children. Others choose to set up a trust, which is nice, since it gives them more ability to determine how the money is spent if they die unexpectly.

Source: Forbes, “The Shrinking Violets Of Estate Planning,” Deborah Jacobs, Sept 8, 2011.