Andrea Coombes, Ways and Means columnist for Dow Jones, last week published an interesting piece for MarketWatch sharing estate planning strategies for baby boomers. To bring readers closer to achieving their goal of putting together an estate plan, Coombes boils down advice, with the help of McManus & Associates Founding Principal John O. McManus, to offer “5 estate-plan strategies for boomers.”
Here are Coombes’ must-do estate-plan tasks:
1. Create a will or trust
2. Create a power of attorney
3. Create a health-care power of attorney and living will
4. Check the titling of your assets
5. Start with your family
In tackling the first tip “Create a will or trust”, a testamentary trust that goes into action when someone dies is given as an example to prevent unexpected consequences with regard to where your money ends up. Coombes draws from McManus’ comments to illustrate:
“The trust is actually built into the will,” said John McManus, founder of law firm McManus & Associates in New Providence, N.J.
He offered an example of what can happen without such a trust: “Say I die and leave my wife a couple of million bucks. Now it’s her in name. She then remarries, and then she dies two weeks later. Her new spouse will get one-third of those assets — even if we intended that money to go to our kids.”
The precise fraction promised to the surviving spouse will vary by state, but McManus said one-third is common.
Some boomers also may want to create a revocable living trust. There are a variety of reasons for considering such a trust.
Here’s one: If you have property or assets in more than one state — say, you live in New Jersey and own a condo in Florida — this document allows your estate to avoid the costly and time-consuming probate process in each state — with one document. A revocable living trust is portable. It will follow you across state lines, McManus said.
For the fifth tip “Start with your family”, Coombes turns again to McManus, who points out that estate planning isn’t only about you. From the piece:
McManus said boomers’ first estate-planning task is to ensure their elderly parents’ estate-plan documents are in order, and their second task is to focus on the estate-plan documents of their adult and minor children.
Coombes goes on to shed light on a potential pitfall:
Here’s one example of what can go wrong: Often people intend to divide their estate equally among all of their children. Their will may state as much, but if one child is named on a joint account, say, to help with bill-paying, that account will pass to that one child “by operation of law,” McManus said.
“Even though the parents intended that it be divided equally, the assets in joint names with their one child will result in that child being disproportionately favored,” he said. In his experience, he said, adult children in that situation “almost never” square up with the other family members.
To avoid the problem, your parents could adjust the will such that larger portions of other assets are given to the siblings or, rather than making that child a joint account-holder, give him or her power of attorney over the account, McManus said.
To get the full story with more expert advice from McManus, click here. And to discuss what your must-do estate plan items are based on your unique circumstances, give us a call at 908-898-0100. We can help.