Wills and trusts kit for dummies by aaron larson

Wills & Trusts Kit
FOR

DUMmIES

‰

by Aaron Larson
Attorney-at-Law



Wills & Trusts Kit
FOR

DUMmIES

‰



Wills & Trusts Kit
FOR

DUMmIES

‰

by Aaron Larson
Attorney-at-Law

Wills & Trusts Kit For Dummies®
Published by
Wiley Publishing, Inc.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
Published by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as
permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior
written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to
the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600.
Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing,
Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, 317-572-3447, fax 317-572-4355, or online at http://
www.wiley.com/go/permissions.
Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the
Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related trade
dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United
States and other countries, and may not be used without written permission. All other trademarks are the
property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor
mentioned in this book.
LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF
THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE
CREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES
CONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE

UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR
OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF
A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE
AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE
OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES
THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT
MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS
WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND
WHEN IT IS READ.
For general information on our other products and services, please contact our Customer Care
Department within the U.S. at 800-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002.
For technical support, please visit www.wiley.com/techsupport.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may
not be available in electronic books.
Library of Congress Control Number: 2008930530
ISBN: 978-0-470-28371-4
Manufactured in the United States of America
10 9 8 7 6 5 4 3 2 1


About the Author
Aaron Larson is an attorney practicing law in Ann Arbor, Michigan, where
he lives with his wife and daughter. After graduating from the University
of Michigan Law School, Aaron started practice as a quintessential small
town lawyer, providing legal services that included estate planning, probate,
and guardianship services. He subsequently worked for the Institute of
Continuing Legal Education in Ann Arbor, Michigan, where he developed professional education programs for lawyers in areas including estate planning,
litigation, and family law. His present legal practice focuses on civil appeals.
He operates the ExpertLaw Web site (www.expertlaw.com), offering free
legal information and assistance to consumers, as well as resources for legal

professionals.



Dedication
To my wife Laura and our wonderful daughter Emma.



Author’s Acknowledgments
I would like to thank the following people for their invaluable contributions
to this book.
ߜ My editor, Kelly Ewing, for her many valuable suggestions.
ߜ My agent, Barb Doyen.
ߜ My acquisitions editor, Michael Lewis, for bringing me into
this project.
ߜ My technical reviewer, Joseph Maguire, who has helped keep
the presentation of legal issues in this book clear, simple, and
accurate.


Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration
form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and
Media Development
Project Editor: Kelly Ewing
Acquisitions Editor: Michael Lewis
Editorial Program Coordinator:

Erin Calligan Mooney

Composition Services
Project Coordinator: Erin Smith
Layout and Graphics: Carl Byers,
Reuben W. Davis, Melissa K. Jester
Christine Williams

General Reviewer: Joseph Maguire

Proofreaders: Melissa Bronnenberg,
John Greenough, Linda Seifert

Associate Project Manager: Jenny Swisher

Indexer: Potomac Indexing, LLC

Assistant Producer: Kit Malone

Special Help: Cynthia Davis-Hubler

Quality Assurance: Shawn Patrick
Senior Editorial Manager: Jennifer Ehrlich
Editorial Supervisor and Reprint Editor:
Carmen Krikorian
Editorial Assistant: Joe Niesen
Cover Photos: Steve Owens
Cartoons: Rich Tennant
(www.the5thwave.com)
Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies
Joyce Pepple, Acquisitions Director, Consumer Dummies
Kristin A. Cocks, Product Development Director, Consumer Dummies
Michael Spring, Vice President and Publisher, Travel
Kelly Regan, Editorial Director, Travel
Publishing for Technology Dummies
Andy Cummings, Vice President and Publisher, Dummies Technology/General User
Composition Services
Gerry Fahey, Vice President of Production Services
Debbie Stailey, Director of Composition Services


Contents at a Glance
Introduction ................................................................ 1
Part I: Getting Started with Your Will or Trust ............... 7
Chapter 1: Ensuring That Your Last Wishes Are Honored ........................................... 9
Chapter 2: Making Crucial Decisions............................................................................. 25
Chapter 3: Gathering Per tinent Information ................................................................ 39
Chapter 4: Planning Your Bequests ............................................................................... 49
Chapter 5: Providing for Your Children and Dependents .......................................... 67
Chapter 6: Dipping into Your Pocket: The Tax Man (and Others) ............................ 75

Part II: Everything You Need to Know about Wills ....... 93
Chapter 7: Writing and Signing a Will ............................................................................ 95
Chapter 8: Navigating the Land Mines ........................................................................ 111
Chapter 9: When You Already Have a Will ................................................................. 127
Chapter 10: Estate Administration: What Happens in Probate Court..................... 137

Part III: Trust Me! How Trusts Work.......................... 149
Chapter 11: The Anatomy of a Trust ........................................................................... 151

Chapter 12: Dead or Alive: Picking Your Trust .......................................................... 163
Chapter 13: When You Already Have a Trust............................................................. 183

Part IV: Carrying Out the Intent
of Your Will and Trust .............................................. 193
Chapter 14: Planning for Your Incapacity................................................................... 195
Chapter 15: Those Cushy Retirement Funds .............................................................. 217
Chapter 16: Life Insurance: Making Sure It Doesn’t Backfire ................................... 229
Chapter 17: Your Castle: How It’s Owned Makes a Huge Difference ....................... 241

Part V: The Part of Tens ........................................... 257
Chapter 18: Ten Common Will Mistakes ..................................................................... 259
Chapter 19: Ten Reasons to Have a Trust .................................................................. 267
Chapter 20: Ten Tax Traps to Avoid When Planning Your Estate........................... 273

Part VI: Appendixes ................................................. 281
Appendix A: State Signing Requirements ................................................................... 283
Appendix B: State Inheritance Taxes .......................................................................... 307
Appendix C: Estate Planning Questionnaire............................................................... 311
Appendix D: About the CD ............................................................................................ 333

Index ...................................................................... 337



Table of Contents
Introduction ................................................................. 1
About This Book............................................................................................................. 1
A Special Note for Residents of Louisiana .................................................................. 2
Conventions Used in This Book ................................................................................... 2

What You’re Not to Read .............................................................................................. 2
Foolish Assumptions ..................................................................................................... 3
How This Book Is Organized......................................................................................... 3
Part I: Getting Started with Your Will or Trust ................................................ 3
Part II: Everything You Need to Know about Wills ......................................... 4
Part III: Trust Me! How Trusts Work ................................................................. 4
Part IV: Carrying Out the Intent of Your Will and Trust ................................. 4
Part V: The Part of Tens ..................................................................................... 4
Part VI: Appendixes............................................................................................. 4
About the CD........................................................................................................ 5
Icons Used In This Book ................................................................................................ 5
Where to Go from Here ................................................................................................. 6

Part I: Getting Started with Your Will or Trust ............... 7
Chapter 1: Ensuring That Your Last Wishes Are Honored . . . . . . . . . . .9
The Good, the Bad, and the Ugly: What Can Happen
When You Don’t Plan Your Estate ......................................................................... 10
Reaping the Benefits of Planning Your Estate .......................................................... 11
Planning for your care while you’re alive ...................................................... 11
Ensuring that your assets go where you want .............................................. 12
Looking Out for Common Pitfalls ............................................................................... 13
Benefits and dangers of jointly titling real estate,
property, and bank accounts ...................................................................... 13
Benefits and dangers of life estates ................................................................ 14
Danger of subjecting an asset to Medicaid spend-down rules .................... 16
Potential for increased tax exposure .............................................................. 17
Realizing What Happens If You Don’t Have an Estate Plan .................................... 18
Following the laws of intestate succession .................................................... 18
Determining the custodian of your minor children ...................................... 19
Creating Your Will or Trust ........................................................................................ 20

Deciding who should create it ......................................................................... 20
Understanding the process .............................................................................. 21
Thinking about your kids, money, life insurance, and more ....................... 23

Chapter 2: Making Crucial Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Going It Alone ............................................................................................................... 25
Are you comfortable doing it yourself? .......................................................... 26
How complicated is your estate? .................................................................... 26
Choosing a Will or Trust for Your Estate .................................................................. 29
What a will can do for you ............................................................................... 29
What a trust can do for you ............................................................................. 30
You may benefit from having both ................................................................. 30


xiv

Wills & Trusts Kit For Dummies
Going with a Pro ........................................................................................................... 31
How lawyers and accountants can help ......................................................... 31
Do you save money in the long haul? ............................................................. 32
Working with a Professional ....................................................................................... 34
Hiring a lawyer ................................................................................................... 34
Meeting with your lawyer................................................................................. 35
Reviewing and executing the documents....................................................... 35
Taking the final steps ....................................................................................... 35
Safeguarding Your Estate Plan ................................................................................... 36
The problem of the disappearing document ................................................. 36
Storing your will or trust .................................................................................. 38
Registration of wills and trusts........................................................................ 38

Chapter 3: Gathering Per tinent Information . . . . . . . . . . . . . . . . . . . . . .39
Asking Yourself Some Basic Questions ..................................................................... 39
Identifying Your Assets ............................................................................................... 40
Real estate .......................................................................................................... 42
Personal property ............................................................................................. 42
Titled personal property .................................................................................. 43
Savings ................................................................................................................ 44
Investments ........................................................................................................ 44
Insurance policies and annuities..................................................................... 44
Retirement savings............................................................................................ 45
Pensions ............................................................................................................. 45
Considering Community and Jointly Owned Property............................................ 45
Valuing Your Property................................................................................................. 47

Chapter 4: Planning Your Bequests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Calculating Your Assets .............................................................................................. 49
Determining Your Intended Heirs and Beneficiaries ............................................... 50
Individuals .......................................................................................................... 51
Institutions or charities .................................................................................... 52
Other bequests .................................................................................................. 53
Thinking about Your Family Circumstances ............................................................ 53
Estate Planning for Second Families .......................................................................... 54
Giving your new spouse a life estate .............................................................. 54
Using trusts to hold your assets ..................................................................... 55
More tools to consider ..................................................................................... 56
Estate Planning for Your Business ............................................................................. 57
Inheritance of your sole proprietorship......................................................... 58
Inheritance of your share of a business ......................................................... 59
Appointing the People Who Will Carry Out Your Estate Plans .............................. 60
Choosing your personal representative or trustee ...................................... 60

Choosing a successor ....................................................................................... 62
Discussing your estate plan with your helpers ............................................. 63
Finding Professionals to Assist You .......................................................................... 63
Getting help from a lawyer ............................................................................... 64
Hiring an accountant ........................................................................................ 64
Using professional trust services (institutional trustees) ........................... 65

Chapter 5: Providing for Your Children and Dependents . . . . . . . . . . .67
Choosing a Guardian.................................................................................................... 67
Making the decision .......................................................................................... 68
Choosing a guardian other than the noncustodial parent ........................... 69


Table of Contents
Managing Your Child’s Assets .................................................................................... 70
Providing for Your Child’s Needs............................................................................... 71
Your child’s education ..................................................................................... 71
Your child’s special needs ............................................................................... 73
Your child’s financial stability ......................................................................... 74

Chapter 6: Dipping into Your Pocket: The Tax Man (and Others) . . . .75
Tallying Up Your Estate’s Tax Liabilities .................................................................. 75
Federal estate taxes — a moving target ......................................................... 76
The generation-skipping transfer tax ............................................................. 76
State estate taxes .............................................................................................. 77
Gift taxes............................................................................................................. 78
Minimizing Tax Costs and Liabilities ......................................................................... 80
Leaving your estate to your spouse................................................................ 80
Making gifts ........................................................................................................ 81
Using trusts to avoid estate taxes ................................................................... 83

Creating a Family Limited Partnership ........................................................... 84
Seeing the Big Picture: Tax Avoidance Should Not Dictate
Your Estate Plan ....................................................................................................... 85
Paying Your Estate’s Debts ......................................................................................... 86
Medical costs and Medicaid reimbursements............................................... 87
Payment of bills, loans, and mortgages .......................................................... 89
Payment of funeral expenses ........................................................................... 89
Covering Administration Costs .................................................................................. 90
Court costs ......................................................................................................... 90
Legal fees ............................................................................................................ 90
Administrator’s fees.......................................................................................... 91
Trustee’s fees ..................................................................................................... 92

Part II: Everything You Need to Know about Wills ........ 93
Chapter 7: Writing and Signing a Will . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Deciding Whether a Will Serves Your Needs ............................................................ 95
Simplicity often leads you to a will ................................................................. 96
Assets not covered by a will ............................................................................ 97
Exploring the Types of Wills ....................................................................................... 99
The statutory will .............................................................................................. 99
The handwritten (holographic) will ............................................................... 99
A will of your own ........................................................................................... 100
Other wills ........................................................................................................ 100
Elements of a Will ....................................................................................................... 102
Who you are ..................................................................................................... 103
What are your assets ...................................................................................... 103
Who are your beneficiaries ............................................................................ 104
What are your bequests ................................................................................. 104
Reference to a tangible personal property memorandum......................... 107
What happens with the residue (if any) of the estate ................................ 107

Payment of debts by the estate ..................................................................... 107
Describing your funeral and burial wishes .................................................. 108
Designating a personal representative ......................................................... 108
Designating a guardian for any minor children ........................................... 109
Your signature ................................................................................................. 109
Executing a Valid Will ................................................................................................ 109

xv


xvi

Wills & Trusts Kit For Dummies
Choosing the right witnesses ........................................................................ 110
Signing and executing your will ..................................................................... 110

Chapter 8: Navigating the Land Mines . . . . . . . . . . . . . . . . . . . . . . . . . .111
Identifying Common Land Mines ............................................................................. 111
Disinheriting heirs, known and unknown .................................................... 112
Avoiding invalidating part or all of your will ............................................... 115
Lashing out from beyond ............................................................................... 119
Handling simultaneous death of spouses .................................................... 119
Realizing Why You Must Update Your Will............................................................. 121
Your goals and wishes may change over time ..................................................121
Your assets may change over time ............................................................... 121
Family changes may invalidate your will ..................................................... 123
Family changes may dramatically alter who inherits under your will ..... 123
Knowing What to Do If You Lose Your Will ............................................................ 126

Chapter 9: When You Already Have a Will . . . . . . . . . . . . . . . . . . . . . .127

Reviewing and Updating Your Will .......................................................................... 127
Changes in your family circumstances......................................................... 128
Changes in your wishes .................................................................................. 130
Changes in your financial situation .............................................................. 131
Changing Your Will .................................................................................................... 133
Adding to your will (amendment by codicil) ............................................... 134
Executing a valid codicil................................................................................. 134
Revoking Your Will..................................................................................................... 135
How to revoke a will........................................................................................ 135
What to do with a revoked will...................................................................... 136

Chapter 10: Estate Administration:
What Happens in Probate Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
Navigating Probate Court.......................................................................................... 137
Discovering How Estate Size Affects Probate Procedures.................................... 138
Probate for small estates ............................................................................... 138
Probate for larger estates .............................................................................. 139
Understanding the Role of the Personal Representative ...................................... 139
Giving notice to legal heirs ............................................................................ 140
Collecting property for distribution ............................................................. 141
Notifying and paying creditors ...................................................................... 142
Distributing bequests ..................................................................................... 142
Hiring a Lawyer........................................................................................................... 143
Overseeing Probate: The Judge................................................................................ 143
Avoiding Will Contests .............................................................................................. 144
Validity.............................................................................................................. 145
Mental incapacity ............................................................................................ 146
Undue influence ............................................................................................... 148

Part III: Trust Me! How Trusts Work .......................... 149

Chapter 11: The Anatomy of a Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
What’s a Trust and Why You Need One .................................................................. 151
Benefitting from Trusts ............................................................................................. 152
They’re flexible ................................................................................................ 153
You can provide for your incapacity ............................................................ 153


Table of Contents
You can avoid taxes ........................................................................................ 154
You can avoid probate ................................................................................... 155
A trust can help protect your privacy .......................................................... 155
Selecting a Trustee..................................................................................................... 156
Choosing Your Beneficiaries .................................................................................... 158
Transferring Assets into Your Trust........................................................................ 158
Staying in control ............................................................................................ 158
Giving (or limiting) your trustee powers ..................................................... 159
Cancelling the trust ......................................................................................... 159
Distributing trust assets ................................................................................. 160
Putting Your Trust into Effect .................................................................................. 161
When the Trust Ends ................................................................................................. 162

Chapter 12: Dead or Alive: Picking Your Trust . . . . . . . . . . . . . . . . . . .163
Why So Many Choices?.............................................................................................. 163
The Revocable Living Trust ...................................................................................... 164
The benefits ..................................................................................................... 164
Possible drawbacks ........................................................................................ 165
Choosing from Other Trusts ..................................................................................... 167
Trusts to avoid the tax man: Asset protection trusts ................................ 168
Trusts for people who can’t manage money:
Spendthrift trusts ........................................................................................ 169

Trusts for doing good: Charitable trusts...................................................... 169
Trusts to avoid gift taxes: Crummey trusts ................................................. 171
Trusts for people who receive government benefits:
Special needs trusts .................................................................................... 172
Trusts to protect your estate plan if you predecease
your spouse: Bypass trusts........................................................................ 172
Trusts where you control the trust assets .................................................. 174
Trusts that own life insurance: Irrevocable life
insurance trusts (ILITs) .............................................................................. 176
Trusts for multiple generations: Dynasty trusts
(generation-skipping trusts) ...................................................................... 177
Trusts to postpone estate taxes: Qualified terminable
interest property trusts (QTIPs) ............................................................... 178
Trusts for your pet .......................................................................................... 178
Deciding Which Trust Is Right for You .................................................................... 179
Serving your personal needs ......................................................................... 179
Serving the needs of your family ................................................................... 180
Thinking about the tax man ........................................................................... 181

Chapter 13: When You Already Have a Trust . . . . . . . . . . . . . . . . . . . .183
Creating the Trust Isn’t the End of the Story.......................................................... 183
Transferring Assets into Your Trust........................................................................ 184
Real estate ........................................................................................................ 184
Financial accounts .......................................................................................... 185
Other assets ..................................................................................................... 186
Reviewing Your Trust ................................................................................................ 186
Does the trust still serve your needs? .......................................................... 186
Does the trust still fulfill your goals? ............................................................ 187
Is the trust adequately funded? ..................................................................... 188
Amending Your Trust ................................................................................................ 188

Restating a Trust ........................................................................................................ 189
Revoking a Trust ........................................................................................................ 190

xvii


xviii

Wills & Trusts Kit For Dummies
What Happens If You Die? ......................................................................................... 190
Can you avoid probate?.................................................................................. 191
Should you also have a will? .......................................................................... 191

Part IV: Carrying Out the Intent
of Your Will and Trust ............................................... 193
Chapter 14: Planning for Your Incapacity . . . . . . . . . . . . . . . . . . . . . . .195
Planning for Incapacity Has Many Benefits ............................................................ 195
You avoid guardianship and conservatorship proceedings ..................... 196
You get to choose who cares for you ........................................................... 196
You ensure that your wishes are followed .................................................. 197
Drafting a Living Will.................................................................................................. 197
Discussing your wishes .................................................................................. 199
Executing a living will ..................................................................................... 200
Distributing copies of your living will........................................................... 201
Reviewing your living will .............................................................................. 201
Looking into Other Advance Directives .................................................................. 202
Healthcare proxies .......................................................................................... 202
Your medical advocate ................................................................................... 203
Special instructions: Your wishes for your care ......................................... 204
Executing a Healthcare Proxy................................................................................... 207

Distributing copies of your healthcare proxy ............................................. 207
Revoking a healthcare proxy ......................................................................... 208
Designating Your Financial Powers of Attorney .................................................... 208
Selecting power of attorney ........................................................................... 209
Deciding between durable powers of attorney or
periodic renewal.......................................................................................... 210
Drafting your durable power of attorney ..................................................... 211
Executing power of attorney.......................................................................... 214
Revoking a power of attorney........................................................................ 214

Chapter 15: Those Cushy Retirement Funds . . . . . . . . . . . . . . . . . . . . .217
Exploring Retirement Savings Accounts ................................................................. 217
Retirement savings accounts available to anyone...................................... 219
Employment-based retirement savings accounts ....................................... 220
Self-employed retirement savings accounts ................................................ 221
Putting Off the Tax Man............................................................................................. 223
Moving Assets from One Tax-Deferred Investment to Another ........................... 223
Designating a Beneficiary .......................................................................................... 225
Selecting your beneficiary.............................................................................. 225
Changing your beneficiaries .......................................................................... 227
Maintaining Control Over Your Accounts............................................................... 227
The Tax Consequences of Putting Your Retirement
Savings into Your Estate ....................................................................................... 228

Chapter 16: Life Insurance: Making Sure It Doesn’t Backfire . . . . . .229
Taking a Look at the Different Types of Life Insurance......................................... 229
Term life ........................................................................................................... 230
Whole life.......................................................................................................... 231
Universal life .................................................................................................... 231
Variable life ...................................................................................................... 232

Table of Contents
Deciding Who Owns the Life Insurance .................................................................. 232
Ownership by a spouse .................................................................................. 233
Ownership by a child or children ................................................................. 234
Ownership by a qualified plan ....................................................................... 234
Ownership by a trust ...................................................................................... 235
Designating Beneficiaries for Your Insurance Policy ............................................ 236
Spouse .............................................................................................................. 236
Child or children ............................................................................................. 237
Another individual .......................................................................................... 237
Multiple beneficiaries ..................................................................................... 238
A trust ............................................................................................................... 238
Your estate ....................................................................................................... 239

Chapter 17: Your Castle: How It’s Owned
Makes a Huge Difference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .241
House, Condo, Co-op, or More: Exploring the Types
of Residential Properties....................................................................................... 241
The single-family home................................................................................... 242
The condominium ........................................................................................... 243
Housing cooperatives (co-ops) ..................................................................... 243
When your residence is a manufactured home or boat ............................. 244
Ownership of Your Residence .................................................................................. 244
Ownership by one person: Sole ownership ................................................. 244
Ownership by two or more people ............................................................... 245
Life estates ....................................................................................................... 246
Community property laws ............................................................................. 247
Special issues for domestic partners............................................................ 247

Should Ownership of Your Home Be Held by Your Trust?................................... 248
The Drawbacks Of Adding Your Heirs to the Title ................................................ 249
The cons outweigh the pros .......................................................................... 249
Possible tax consequences ............................................................................ 250
Possible Medicaid consequences ................................................................. 251
Leaving Real Property by Will or Trust ................................................................... 251
Remembering Other Properties ............................................................................... 252
Vacation properties ........................................................................................ 252
Investment properties .................................................................................... 253
Business real estate ........................................................................................ 254
Farmland........................................................................................................... 254

Part V: The Part of Tens ............................................ 257
Chapter 18: Ten Common Will Mistakes . . . . . . . . . . . . . . . . . . . . . . . .259
Not Updating Your Will ............................................................................................. 259
Being Too Specific in Your Bequests....................................................................... 260
Forgetting to Address the Residuary of Your Estate ............................................. 261
Leaving Everything to Your Spouse......................................................................... 262
Leaving Nothing to Your Spouse.............................................................................. 262
Including Items in Your Will That Pass Outside of Your Estate ........................... 263
Improper Witnessing of Your Will............................................................................ 263
Losing Your Will (or Making It Impossible to Find) ............................................... 264
Forgetting to Leave Good Financial Records.......................................................... 264
Forgetting That Your Estate Needs Cash ................................................................ 265

xix


xx

Wills & Trusts Kit For Dummies
Chapter 19: Ten Reasons to Have a Trust. . . . . . . . . . . . . . . . . . . . . . . .267
You Avoid Probate ..................................................................................................... 267
You’re Prepared for Incapacity ................................................................................ 268
You Avoid a Will Contest .......................................................................................... 269
You Protect Your Heirs ............................................................................................. 269
You Can Protect Estate Assets from Creditors and Lawsuits .............................. 270
You Plan for Second (and Third, and Fourth) Marriages ..................................... 270
You Plan for the Future of Your Business............................................................... 271
You Can Transfer Real Property Located in Another State .................................. 271
You Have Continuity of Investments ....................................................................... 272
You Avoid Taxes ........................................................................................................ 272

Chapter 20: Ten Tax Traps to Avoid
When Planning Your Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273
Not Planning Your Estate .......................................................................................... 273
Focusing Too Much on the Estate Tax .................................................................... 274
Assuming that the Estate Tax Will Not Change ...................................................... 275
Trying to Guess How the Estate Tax Will Change .................................................. 275
Not Taking Advantage of Your Lifetime Gift Exclusion ......................................... 276
Not Engaging in Business Succession Planning ..................................................... 276
Hiding Property Transfers and Gifts from the IRS ................................................. 277
Having Your Estate Be the Beneficiary of Your Life Insurance ............................ 278
Not Preparing Your Estate to Pay Any Estate Tax Owed ...................................... 279
Forgetting That Your Estate Will Grow Over Time ................................................ 279

Part VI: Appendixes................................................... 281
Appendix A: State Signing Requirements . . . . . . . . . . . . . . . . . . . . . . .283
Alabama ....................................................................................................................... 283
Alaska........................................................................................................................... 284

Arizona ........................................................................................................................ 284
Arkansas ...................................................................................................................... 284
California ..................................................................................................................... 285
Colorado ...................................................................................................................... 286
Connecticut ................................................................................................................. 286
Delaware ...................................................................................................................... 287
Florida.......................................................................................................................... 287
Georgia ........................................................................................................................ 287
Hawaii .......................................................................................................................... 288
Idaho ............................................................................................................................ 288
Illinois .......................................................................................................................... 289
Indiana ......................................................................................................................... 289
Iowa .............................................................................................................................. 290
Kansas.......................................................................................................................... 290
Kentucky...................................................................................................................... 290
Louisiana ..................................................................................................................... 291
Maine ........................................................................................................................... 292


Table of Contents
Maryland ..................................................................................................................... 292
Massachusetts ............................................................................................................ 292
Michigan ...................................................................................................................... 293
Minnesota.................................................................................................................... 293
Mississippi .................................................................................................................. 294
Missouri ....................................................................................................................... 294
Montana....................................................................................................................... 294
Nebraska...................................................................................................................... 295
Nevada ......................................................................................................................... 295
New Hampshire .......................................................................................................... 296

New Jersey .................................................................................................................. 296
New Mexico ................................................................................................................. 296
New York ..................................................................................................................... 297
North Carolina ............................................................................................................ 298
North Dakota............................................................................................................... 298
Ohio.............................................................................................................................. 298
Oklahoma .................................................................................................................... 299
Oregon ......................................................................................................................... 299
Pennsylvania ............................................................................................................... 300
Rhode Island ............................................................................................................... 300
South Carolina ............................................................................................................ 301
South Dakota............................................................................................................... 301
Tennessee ................................................................................................................... 301
Texas............................................................................................................................ 302
Utah.............................................................................................................................. 302
Vermont....................................................................................................................... 303
Virginia ........................................................................................................................ 303
Washington ................................................................................................................. 304
West Virginia............................................................................................................... 304
Wisconsin .................................................................................................................... 304
Wyoming...................................................................................................................... 305

Appendix B: State Inheritance Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .307
The Impact of Federal Estate Tax Reform............................................................... 307
States That Don’t Tax Estates................................................................................... 308
States That Impose Only Inheritance Taxes ........................................................... 308
States That Impose Only Estate Taxes .................................................................... 309
States That Impose Both Estate and Inheritance Taxes ....................................... 309

Appendix C: Estate Planning Worksheet. . . . . . . . . . . . . . . . . . . . . . . .311

Estate Plan................................................................................................................... 311
Personal information ...................................................................................... 311
Goals and priorities......................................................................................... 312
Family information .......................................................................................... 312
Assets................................................................................................................ 315
Debts ................................................................................................................. 318
Bequests ........................................................................................................... 319
Your advisors .................................................................................................. 320
Estate planning documents............................................................................ 320

xxi


xxii

Wills & Trusts Kit For Dummies
Will ............................................................................................................................... 320
Personal representative ................................................................................. 321
Guardian for minor children .......................................................................... 321
Bequests ........................................................................................................... 322
Estate taxes ...................................................................................................... 323
Disinheritance.................................................................................................. 323
Trust provisions .............................................................................................. 324
Funeral and burial arrangements .................................................................. 324
Living Trust ................................................................................................................. 325
Trustees and alternates.................................................................................. 325
Property to transfer into trust* ..................................................................... 326
Disinheritance.................................................................................................. 327
Distribution of trust assets ............................................................................ 327
Conditions on distribution ............................................................................. 328

Special concerns ............................................................................................. 328
Durable Power of Attorney ....................................................................................... 328
Choice of agent ................................................................................................ 328
Powers granted................................................................................................ 329
Preferences for the sale of property ............................................................. 329
Healthcare Proxy........................................................................................................ 329
Choice of medical advocate ........................................................................... 329
Living Will.................................................................................................................... 330
When should treatments cease ..................................................................... 331
Treatments that may prolong life ................................................................. 331
Comfort and pain relief................................................................................... 331
Place of death .................................................................................................. 332

Appendix D: About the CD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .333
System Requirements ................................................................................................ 333
Using the CD ............................................................................................................... 333
What You’ll Find on the CD ....................................................................................... 334
Troubleshooting ......................................................................................................... 335

Index ....................................................................... 337