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How will getting married affect my financial and estate planning?

Getting married will affect every facet of your life, especially issues that revolve around money. According to "The New Century Family Money Book" (Dell Publishing), "Everything from health, property, casualty and life insurance to checking, savings, investment, and retirement accounts will need to be revised. If children from a previous marriage are involved, tuition planning that was in the works will need to be revised and recalculated -- or begun. Devise a budget, based on your increased or decreased income, that spells out what percentage of whose paycheck goes to the paying of which bills "Your personal circumstances may have changed for the better, but be sure your financial circumstances don’t suffer as a result of marriage. Be certain that you and your spouse devise a budget for household expenses and a financial plan for the stages in your newly linked lives; purchasing a home, having children, paying for their education, and building your retirement nest egg." Make sure you and your spouse set aside enough time every year to review your long-term financial plans and make needed adjustments.

How will a divorce affect my estate planning?

If you are getting divorced, both you and your spouse should ask an attorney to review and revise your wills and related estate planning tools to account for your new status as single people. According to "The New Century Family Money Book" (Dell Publishing), "Most states will not allow couples who are in the process of divorcing but are still legally married to completely disinherit the spouse. During the period of separation preceding a divorce, you may wish to reduce your spouse’s bequest to the minimum amount required by law. When the divorce is finalized, you will probably need to redraft the will as well as other estate planning documents to change beneficiaries and trustees, at least. Pay careful attention to guardianship arrangements for children. "A number of estate and gift tax opportunities and pitfalls may arise as a result of a divorce. Certain trusts can protect a former spouse who is financially inexperienced and can protect the children’s inheritance in the event that the former spouse remarries and subsequently divorces." As with other estate planning issues, it’s imperative to get the help of legal and tax professionals.

What can be done to plan for the management of my affairs in case of the disability or incapacity which often comes with advanced age?

If you should become disabled, life goes on. Bills (rent, mortgage, utilities) must be paid. Form 1040 must be filed. If you own a business, you may want it to carry on without you. Your property must be managed. One way to give someone else authority to manage your property is to put it into joint tenancy. This will give your co-owner the power to handle your property should you become disabled. In some cases (usually when a spouse is a joint tenant), this arrangement may be all you need to protect your property. Another method is to establish a revocable living trust, naming yourself and someone you trust as co-trustees. You transfer the assets that need managing to the trust, and give the co-trustee the powers over the assets you designate. For many people, a durable power of attorney (DPA) is the best protection against the consequences of becoming disabled. A DPA is a document in which one person (the principal) gives legal authority to another person (the agent) to act on the principal’s behalf. If you want someone to handle some of your basic financial matters but don’t want to give them full power of attorney, you can name them your payee representative. A payee representative is usually limited to jobs like receiving your income, making bank deposits on your behalf and paying your bills. You, however, retain control over your other financial affairs.


Do I need a lawyer to draft my will?

The law doesn’t require your will to be drafted by an attorney. But it doesn’t hurt to use an attorney, and you should certainly consult one if you have any questions. As an alternative, according to "Personal Finance for Dummie$," (IDG Books Worldwide Inc., Foster City, Calif.), "The simplest and least costly way to prepare a will, a living will, and a medical power of attorney, is to use one of the high-quality, user-friendly software packages developed by attorneys." Or you can hire a paralegal typing service to help you prepare the documents. They typically charge half or less of what an attorney would charge. You can find paralegal services in the Yellow Pages of your local telephone book. If you think that the total value of your estate might come anywhere close to the amount exempted from federal estate taxes ($675,000 in 2001), you will definitely need to talk to an attorney.

What are some ways to reduce attorney fees?

Few people like to visit a lawyer, and even fewer like to pay the bill. Here are some tips to keep a lawyer’s fees down.
1. Interview several lawyers and ask how you can keep costs down. If you like a lawyer, but the fee is too high, ask for a reduction.
2. Get a written agreement about fees and retainers. It’s required by law in some states. Required or not, it’s a good idea.
3. Do some work yourself. Gather documents, file papers and make photocopies. (Some lawyers charge up to 50 cents a page to make copies of documents you provide.)
4. Make sure junior lawyers or paralegals, who bill at lower rates, will do routine tasks.
5. Limit the lawyers. If a junior lawyer is sitting in on a meeting, make it clear at the outset that you will pay for only one lawyer.
6. Ask your attorney to use regular mail rather than fax or overnight delivery when possible. Remember, the cost is passed on to you.
7. Consolidate your phone calls. Most lawyers bill in six-minute or quarter-hour segments. So rather than calling three times and talking four minutes each, you’ll save money by bunching your questions and calling just once.
8. Question the bill if something doesn’t seem right.

What is power of attorney?

When you give someone the authority to act on your behalf, you are granting power of attorney. There are several types of powers of attorney. Limited powers of attorney grants only narrow rights, like giving a friend your check-writing powers while you are on an extended vacation. Limited powers are revoked if you become mentally disabled. Ordinary powers of attorney give broader powers over your finances. They, too, expire if you become mentally disabled. Durable powers of attorney usually grant the broadest powers of all. A durable power of attorney remains effective if you become incapacitated. Springing powers of attorney are also broad, but do not become effective unless you become mentally disabled or otherwise incapacitated. A springing power of attorney also lets you provide your own definition of "incapacitated." For example, you may want to limit the term to a judgment, rendered by the court, that you are senile. Or, you could define it as lapsing into a coma for more than a specified number of days.

What goes into a durable power of attorney?

There are three parts to a durable power of attorney: A statement of intent to create a durable power of attorney; the appointment of the attorney-in-fact or representative, and a statement of the attorney-in-fact’s powers. Most stationery and business-supply stores sell preprinted, one-page durable power of attorney forms for about $5. You can fill in blanks, cross out provisions or make an addendum if you wish, although such changes should be kept to a minimum. Several computer programs can also create the forms for you. Unfortunately, laws that concern a durable power of attorney vary from state to state. In fact, in some states you need one power of attorney for financial matters and a second for medical matters. If you’re not sure whether a standard form is acceptable in your state, you may need to hire a lawyer to draw up the forms for you.

How is a power of attorney terminated?

Whether a power of attorney is durable or not, you have the right to terminate or revoke it at any time as long as you are still competent. You can revoke for any reason or no reason at all. The person who holds your power of attorney must be told of your revocation. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "Simply notify the holder of the power that the power is revoked and that you no longer wish him or her to act as your attorney-in-fact. You can do this orally, but as with most things of legal significance, it’s best to put it in writing. Be specific as to the power involved and send the revocation to the attorney-in-fact." As an added layer of protection, ask the person to return the original power of attorney form you signed and destroy any copies you have made. Also notify your family members, friends and others who are involved that the power has been terminated.

Can the person who holds my power of attorney settle my estate without going through probate?

By law, all powers of attorney you have granted while living must cease the moment that you die. As a result, you can’t expect the person who holds your current power of attorney to settle your estate. When you die, the power of attorney ceases.

What is a payee representative?

If you want someone to handle some of your basic financial matters but don’t want to give them full power of attorney, you can name them your payee representative. A payee representative is usually limited to jobs like receiving your income, making bank deposits on your behalf and paying your bills. You, however, retain control over your other financial affairs. A payee representative can come in handy when you’re out of town for an extended period, are laid up in the hospital, or are simply too busy to personally handle simple financial chores.

When should property be held in joint tenancy?

People usually choose to hold property in joint tenancy in order to avoid probate. Property held in the traditional form of joint tenancy carries the "right of survivorship," which means the interest held by a joint tenant who dies is automatically transferred to the surviving joint tenant. Still, there are some serious risks to using joint tenancy merely to avoid probate. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "It is one thing for people to buy property together and hold it as joint tenants because they want the other to get their interest if they die. It is a whole other thing to take property that is solely owned and transfer it into joint tenancy with another simply to avoid the probate process. By doing so, you effectively give away an interest in the property that may be sold, attached by creditors, tied up if the person becomes incapacitated, or even reassessed for property tax purposes." Holding property as joint tenants also gives each person equal access to the asset. For example, if you add your daughter’s name to your bank account, she can pull the money out at any time without getting your permission first.

What kind of property can be held in joint tenancy?

Just about any type of property, from real estate to stocks, can be held in joint tenancy with someone else. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "Most people know that real estate can be held in joint tenancy but are unaware that other property, such as bank accounts and cars, can be held in this manner just as easily (if allowed by the bank and state law). Even property that is not held by another, or that does not have recording requirements for documents of title, can be held in joint tenancy, as long as the owners show an intent to do so and the law allows it." For example, a widow who wants her son to be able to make deposits on her behalf could add his name as a joint tenant of her bank account. However, as a joint tenant, the son would also have the power to make withdrawals and would automatically get to keep all the money in the account when his mother dies-even if the mother’s will states that all her assets are to be distributed equally among her children.

How do you sever or break a joint tenancy?

If you hold property with someone else as joint tenants and decide that you no longer want that person to inherit your interest when you die, it’s relatively easy to remove the joint tenant’s "right of survivorship." In every state, the law considers a joint tenancy to be broken as soon as one of the tenants transfers his interest in the property to any other person. Some states even allow you to set up a "straw man" who will accept your property and then immediately transfer it back to you so you can dissolve the joint tenancy but still retain an ownership interest. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "If you’re concerned that the straw man won’t transfer the property back, you can have the process handled through an escrow or attorney’s office. Lawyers commonly do this for their clients, having themselves or their secretary play straw man." If you use a straw man and then have the property transferred back to you, you will then be considered a tenant in common. That gives you the power to sell your interest in the property without first seeking permission from the other owner(s), or to will your interest to anyone you choose. Of course, when the other owner dies, you won’t be entitled to automatically inherit their interest in the property because you are no longer a joint tenant.

Can you get property back once you’ve transferred it into joint tenancy as a gift?

If you own property by yourself and then add a joint tenant’s name to it, you have essentially made a gift. As a result, you cannot regain sole control of the asset unless the joint tenant agrees to give it back. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "As they say, a gift given is gone. For this reason in particular, many people prefer a revocable living trust to a joint tenancy as a probate-avoidance device."

What happens to my jointly owned property when I die?

When you jointly own property with someone else, that person will automatically receive the property when you die. If there are more than two joint owners, your interest will be divided evenly among them unless there’s an agreement that says otherwise. For example, if you have a $30,000 certificate of deposit that you jointly own with your mother, you’ll get her half of the money if she dies first and she will get your half if you die first. But if the $30,000 CD is jointly owned by you, your mom and your brother, your $10,000 interest in the note would be shared equally by them if you’re the first to go. For estate planning purposes, it’s important to remember that holding property with someone jointly while you are alive can complicate matters when you’re dead. For example, say you have two children, Tom and Jane, and that you put Tom’s name on your bank account a long time ago so he could pay some of your bills. When you die, all the money in the account will likely go to joint-owner Tom even if your will states that you want your assets evenly divided between Tom and Jane. Even if Tom’s a nice guy and decides to give half the account to Jane, Tom could run into problems with the Internal Revenue Service-especially if the amount he gives to Jane is more than $10,000 and therefore subject to the federal gift tax.

How do you obtain full title to joint tenancy property after your joint tenant dies?

When you own property in a joint tenancy with someone else-for example, a home you own with your spouse-your joint tenant’s interest in the property will automatically be transferred to you if the joint tenant dies before you do. Still, getting clear title to the property will take a little work. According to The Five-Minute Lawyer’s Guide to Estate Planning (Dell Publishing, New York), "While title automatically vests in the surviving joint tenants, the survivors still need to perform a few cleanup procedures to clear the decedent’s name off the official records (wherever they are). This doesn’t mean a probate procedure [requiring a trip to probate court], but it does generally require the filing of a death certificate and other documents, such as an affidavit, to establish the survivor as the sole owner." You can usually get the documents needed to establish sole ownership from the attending physician or hospital that recorded the death.

I am a widow and hold a large certificate of deposit in joint tenancy with my two children. When I die, how will the CD be divided?

If a single parent dies, interest in the CD would automatically be split between the children, who would continue to hold the certificate as joint tenants. However, your offspring are advised by experts to then close the account and split the proceeds so that upon their own death, their half-shares would pass to their own families. If they instead kept the CD as joint tenants and one of the children died, the entire account would become the property of the remaining child and the deceased’s family would get nothing.

How does a tenancy in common work?

If you hold property through a tenancy in common, you and your fellow co-tenants each have a share in the property. The shares are usually equal, but exceptions are sometimes made. As a tenant in common, you have the right to sell or give away your share at any time and without the permission of the other co-tenants. When you die, your share can be passed to whomever you wish-the share does not automatically belong to your co-tenants. Investors who team up to buy an apartment building or other rental property often take title as tenants in common. Even married couples sometimes choose to hold property as tenants in common, especially if one of them wants to leave their share of the property to children from a previous marriage.

What does it mean when property is held as tenants by the entirety?

When taking title to a home or other property, some married couples choose to hold the property as tenants by the entirety. Tenants by the entirety is a rare type of joint ownership. Under it, the property generally cannot be divided by a couple while they are still married. As with traditional joint ownership, the surviving spouse becomes the sole owner when the other spouse dies. In a divorce, the former spouses become tenants in common.

What is community property?

Community property is property acquired after marriage in the states that follow the community property laws. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The premise of the law is that husband and wife form a partnership and all property acquired during the marriage by the skill or labor of either belongs to both.

What is the fair market value of property?

Definitions of fair market value abound. Real estate agents define it one way. Insurance companies define it another. Jewelers, accountants and even pawn-shop owners have definitions of their own. In general, fair market value is the sum a buyer would be willing to pay for your property and that you would be willing to accept -- assuming that neither of you is under pressure to buy or sell, and that neither of you are guilty of misrepresentation.

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