The end of the year will be here before we know it. But there is still time to meet some major estate planning goals. Here are ten things to do before the end of 2012.
1. Have your estate planning done. Set the end of the year as your deadline to finally get this completed. If you don’t have an attorney, ask friends and acquaintances for referrals. If you aren’t sure about some decisions, your attorney can help you. If money is tight, start with what you can afford (a will, power of attorney, health care documents) and upgrade when you can.
2. Review and update your existing estate plan. Revisions should be made any time there are changes in your family (birth, death, marriage, divorce, remarriage), your finances, tax laws, or if a trustee or executor can no longer serve. Now is a perfect time to do this; if there are changes you want to share with family members, you can do that when you are together for the holidays. (See #9 below.)
3. Use your $5.12 million exemption. For the rest of this year, every American can transfer up to $5.12 million free of federal gift, estate and generation-skipping transfer tax. (A married couple can transfer up to $10.24 million.) If Congress does not change the current law, the federal estate tax exemption in 2013 will be just $1 million. You do not have to die in 2012 to use this exemption. You do not have to completely give away your assets. And you do not have to use the full $5.12 million exemption to benefit. But you must act before the end of this year.
4. Make tax-free gifts. Under current federal law, you can give up to $13,000 to as many people as you wish each year. This is a great way to reduce the size of your estate over time. For example, if you give $13,000 per year to your two children and three grandchildren, you would remove $65,000 from your estate in just one year and $325,000 in five years. (You can double these amounts if you are married.) Charitable gifts are unlimited. So are gifts for tuition and medical expenses, if you give directly to the institution.
5. Secure/update health care documents. These include 1) Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and 2) HIPPA Authorizations, which give written consent for doctors to discuss your medical situation with others, including family members.
6. Review/update guardian for minor kids. The person you name as guardian for your children when they are small may not be the best choice as they get older. This person could also change his/her mind, move away, become ill or die. Revisit your choice from time to time, and name a back-up in case your first cannot serve. If you haven’t named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids without your input.
7. Review/update beneficiary designations. This is critical if your beneficiary has died or if you are divorced. If your beneficiary is incapacitated or is a minor, setting up a trust for this person and naming the trust as beneficiary will prevent the court from taking control of the proceeds.
8. Review/update your insurance. Check the amount of your life insurance coverage and see if it meets your family’s current needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and/or your spouse should need it due to illness or injury.
9. Talk to your children about your estate plan. You don’t have to show them bank and financial statements, but you can talk in general terms about what you are planning and why. The more they understand it, the more likely they are to readily accept it—and that will help to avoid discord after you are gone. You can also talk to them about your values and the opportunities that money can provide. Even better, show your values by example—the holidays are an excellent time for families to do charitable work together.
10. Get basic documents for your unmarried kids who are over 18. It’s a mild shock when we learn we can’t see our college kids’ grades without their permission, even though we pay the tuition. It can be much worse if they become ill. Unmarried adults (18 and over) need the documents in #5 above so you can act on their behalf in a medical emergency. And, while you’re at it, have your attorney prepare a Simple Will and Durable Power of Attorney (for assets). Hopefully, these will not be needed but if an event does occur, you will be glad you have them.