Very few people would call estate planning fun. In fact, we're pretty sure none would. It's the perfect combo of everything terrifying: lawyers, taxes, and death. Yeesh.
Unfortunately, planning your estate is a necessity -- unless you're hoping to drive your beloved family members into a no-holds-barred catfight after your death. In which case, drop lots of provocative, contradictory hints about how much you have and who might be getting it.
But if not, you need to figure out how you want your belongings allocated postmortem -- especially if you're a homeowner, since a home is the largest asset most people own.
Before you start the process, here's what estate planners wish you knew.
1. Think about death -- even though it's scary
It's not fun to think about, but death happens to everyone. Yes, like taxes. And you know what happens when you don't prepare for your taxes.
"Most people overlook the inevitability of death," says Jennifer Kain Kilgore, a former estate planning attorney in Natick, MA. "It's always lovely to think about the present, but it never hurts to plan ahead."
Even if you're young. Accidents happen.
2. Dying without a will is never pretty
While it's true that you won't be the one suffering the consequences of death without an estate plan (or with one that is not as clear a it should be), consider your family.
They'll be forced to go through probate, where an executor is chosen. And it's a seriously long and painful process.
"I saw the worst side of humanity there," says Kilgore, who was in charge of probate at her former firm. "When money and real estate is involved, family members will sue one another. I've seen it before, and it's not pretty."
Pass away without a plan, and your state will determine how your assets are distributed -- and they don't care if you didn't want everything to go to your horrible brother. (You can look up general guidelines here.)
An estate attorney, on the other hand, will take your individual situation into account when determining the best way to pass on your home.
3. Inventory your belongings
The first step in creating a will is to inventory all of your belongings -- everything from your house to your finest china to important paperwork. (As a bonus, this practice is also superhelpful for insurance purposes.)
Things Pelle-Beer recommends homeowners track down:
- bank accounts
- insurance policies
- retirement plans
- stocks and bonds
- cars (and their associated paperwork)
4. Always name an executor
You may not want to decide between your oldest daughter and your favorite brother, but failing to name an executor for your estate is a huge mistake.
"The homeowner assumes that, just because they have a will, everything's covered," Pelle-Beer says. But failing to designate an executor (or executrix) "means the court decides who may be appointed to distribute your assets and carry out the instructions in the will."
That could mean your grumpy Uncle Bert, who's determined to squeeze every bit of misery and pain from your family in the weeks following your death. Avoid those terrible consequences by choosing an executor you trust.
5. Property tax exemptions are complicated
A variety of city, state, and federal rules affect the taxes you or the executors of your estate will be expected to pay -- as does the specific way you've established ownership. To understand the tax structure fully, you're going to need an in-person consultation with an estate planner.
For instance, you might be worried about putting your home in a trust because "many homeowners are wrongfully told that ownership of a home in a revocable trust will disqualify the homeowner for property tax exemptions," says Jeffrey A. Asher, an estate planning attorney in New York, NY. "That's not necessarily true." In many circumstances, homes in a trust are treated like personal property of the grantor (you).
6. Regularly review your beneficiaries
Maybe for a while you did have a good relationship with your salty Uncle Bert -- until you finally recognized his terrible ways. When relationships change, make sure to review your beneficiaries.
Because life insurance and retirement money is distributed outside of your will, it's easy to overlook during estate planning. You may have chosen someone when you signed up for the plan years and years ago. If that someone is dead, or you're divorced, or you just plain old don't like them anymore, make sure to change your designation.
7. Long-term care doesn't mean sacrificing your home
Elderly homeowners in need of long-term care might worry that their home -- which they had hoped to pass down -- will become collateral to pay for assisted living.
"Many homeowners don't know that you can own your home and keep your income and keep some assets and still qualify for government benefits for long-term care," Asher says.
As with all matters of your estate, a consultation with a planner is necessary to determine precisely how the bevy of local, state, and federal taxes affect you and your possessions. But don't despair just because you need care -- there are options available to make sure you're comfortable and your estate stays intact.