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
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.
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
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.
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
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
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
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
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
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
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
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
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