If you die without a will, the state will make one for you. Suppose you die leaving a spouse and adult children. You wanted your husband to inherit everything, assuming that your kids would receive the remainder upon his death. But that may not happen. In many states your spouse will get only one-third to one-half of your estate while the kids receive the rest.
Also, when preparing a will, you can appoint the guardian who, at your death, would be best suited to care for your children. Most people pick a family member-a parent or sibling or sometimes a close friend.
Be sure to choose an alternate guardian in case your first choice cannot or will not serve. Let the individuals you plan to name know that you have chosen them so that they can agree to be guardians.
What happens if you die before making a will that names a guardian? Your kids will be at the mercy of family members, friends and the probate court. Keep in mind that any interested person can ask to become a guardian, and that this critical decision would then be made by a probate judge-who probably doesn't know your family.
Create and Fund a Revocable Living Trust
A revocable living trust is similar to a will-both are legally binding documents that leave money and property to loved ones at your death. However, a trust requires that you appoint your-self or someone you choose, a trustee, to manage and distribute assets in the trust during your lifetime. You may put some or all of your money and property into the trust. If you name yourself trustee, you'll be in control of the assets.
If you do choose to serve as your own trustee, you will still need a backup to take over should you become incapacitated or die. Pick someone who is capable, trustworthy and willing-usually a spouse, relative, close friend or professional trustee. Professional trustees can be found at local banks and trust companies. Compare the results of their investments over the last few years. Even after choosing a trustee, you can replace that person at any time.
Creating and funding a living trust often saves you money, since the cost and time required to distribute assets held in a trust are usually significantly less than transferring assets under a will. Many people think a will avoids probate. This is not true. Assets passing under a will must go through probate. Probate involves filing and verifying the will with the local court, appraising property, paying debts and taxes, and distributing the remaining assets to the heirs.
Besides avoiding probate, living trusts can provide other benefits that a will can't. Suppose you leave your estate to your son in your will. What happens if he later divorces or dies? His wife ends up with much or all of your funds. Your son's wife (or ex-wife) could then leave your money to anyone she chooses at her death-omitting your son's children (your grandchildren) entirely. With a living trust you can guard against such a scenario, making sure your grandchildren benefit from your estate. You would name your son as your successor trustee, allowing him to draw income (and possibly principal) in his lifetime. At his death (or when he reaches a designated age) the trust would end and the funds would be distributed to his kids.
A living trust can also protect your children's or grandchildren's probate inheritance until they are responsible enough to handle it themselves. You can name a more responsible family member as successor trustee to keep control of the funds for children or grandchildren until they are 25, 30, 40 or even older. You decide when the time is right. In the meantime, the heirs can get money from the trust as they need it for school, health care, and other worthwhile purposes.
Finally, if you are remarried and wish to leave money or property to children from a prior marriage, a living trust is invaluable. In some states, assets in a living trust that pass to children at death cannot be intercepted by a surviving spouse. But if you have only a will, chances are your spouse will receive a sizable portion of your estate-even if the will leaves everything to your children.
Assign a Power of Attorney
This may be the most important planning tool you can give to your family. Let's say you suffer a stroke and can't handle your financial affairs. Your bills still need be paid, and to do that, some of your CD's must be cashed in and stocks sold. Since you're too ill to sign, can your husband or children help? Unfortunately, the answer is no. No one else is automatically authorized to handle your finances.
A power of attorney can give the agent either specific, limited powers or broad powers. For example, it can authorize someone to sign the deed to sell your house when you are out of town or to endorse checks, pay bills or make withdrawals from your accounts.
A durable power of attorney is almost exactly the same as a regular power of attorney, but with one key difference. A regular power of attorney becomes ineffective the moment the principal becomes incompetent; a durable power of attorney remains valid even after debilitating illness or mental impairment.
What happens if you become incapacitated without having given anyone a durable power of attorney? Typically, your financial affairs would have to be managed by a guardian appointed by the probate court-a more expensive and more complex procedure than a durable power of attorney.
Assign a Health Care Proxy
The durable power of attorney permits you to appoint a trustworthy individual to handle your financial matters. Most states now allow specialized durable powers of attorney for health-care decisions, too. This document lets you appoint a trusted relative or friend to make decisions about your medical care in the event that you are unable to make or communicate them yourself.
For example, suppose a doctor would like to try a procedure (non-emergency) to diagnose your illness. You are unconscious, so you are unable to authorize it. The doctor can't just go ahead with the procedure and your family can't authorize it. However, if you have given your family durable health care power of attorney or they have obtained guardianship through the probate court, then they can authorize the medical procedure.
Massachusetts has a specific statutory provision for this useful tool and calls it a Health Care Proxy.
A Living will informs others what medical treatment you desire if you become permanently unconscious or terminally ill and are unable to make or communicate decisions regarding treatment. All but three states-Massachusetts, Michigan and New York-have passed living will laws to protect a patient's right to refuse medical treatment. In the majority of states, a living will is a legally enforceable document and can insure that a doctor who abides by a patient's wishes will not incur any liability.
Even in states without living will laws this document is useful to a judge trying to decide what an unconscious patient would want.
Prepare a Homestead
Filing a Declaration of Homestead in Massachusetts gives you protection against creditors for up to $500,000 in the equity in your home. Single persons are eligible to file homesteads. Disabled persons can be entitled to EXTRA protection as are persons over the age of 62.
Own your Home by Tenancy by the Entirety
This form of ownership affords in many circumstances excellent protection against creditors for married couples. Consult with your attorney about this form of home ownership.
There are many more sophisticated weapons for a savvy person to protect his or her assets from Creditors including Family Limited Partnerships, Limited Liability Corporations, and Corporations and a wide selection of Estate Planning Techniques that are excellent tools to protect assets.