If you're rich, the best estate planning advice would be to die quickly. If you're not, the best advice is to either review or rewrite your estate planning documents to make sure your heirs aren't left high and dry if you die.
FOR THE RECORD: Estate planning: The Personal Finance column about estate planning in the March 7 Business section misidentified the book "Trial & Heirs: Famous Fortune Fights!" by Andrew W. Mayoras and Danielle B. Mayoras as "Trial and Errors: Famous Fortune Fights." —
That's because estate taxes that could allow Uncle Sam to nab up to 45% of your bequeathed assets are currently -- and very temporarily -- kaput.
A decade-long phase-out of the estate tax eliminated the tax completely as of January. The catch: If nothing's done, estate taxes will boomerang back to historic levels in 2011. That means any bequest of more than $1 million would be hit with a heavy levy on any amount above that limit after December.
But estate planning isn't just about taxes, and it's not just for the rich.
The legal vacuum that was created by the temporary elimination of the estate tax has created potential pitfalls even for people with modest estates.
For example, if you were to die this year and had an old "by-pass" trust, the elimination of the estate tax could cause you to accidentally disinherit your spouse, said Clay Stevens, director of strategic planning for Aspiriant, a wealth management firm in Los Angeles.
These trusts, aimed at reducing estate taxes, often have boilerplate provisions for bequeathing children an amount equivalent to the estate tax "exclusion." This year, that exclusion is unlimited, so everything goes to your kids and unintentionally there would be nothing left for a spouse, he said.
Then, too, as long as the estate tax is phased out, so is something called the "step-up" that reduced capital gains taxes on your appreciated assets after you died.
You can still get that break if you make a few strategic fixes to your estate plan this year, Stevens said. But, if you do nothing, your heirs could face capital gains taxes on all but a pittance of your appreciated property.
"This is the one year when you can't procrastinate," said Herbert E. Nass, a New York lawyer and author of "101 Biggest Estate Planning Mistakes." "Absolutely everyone should review their documents."
What if you have no documents? Then get cracking.
Studies indicate that the vast majority of Americans don't have wills, trusts or powers of attorney. That can leave heirs in a rough spot, said Danielle Mayoras, coauthor with her husband, Andy, of "Trial & Errors: Famous Fortune Fights."
Act now, avoid trouble later
Ignoring your estate plan can land your children with ill-suited guardians or give them a pile of cash that they're too young to handle, she said.
If you become incapacitated before you die, it can mean that your care could be dictated by a stranger -- or even an enemy. And, doing nothing can cause your heirs to bicker and battle in court -- sometimes for decades.
"People never think their family is going to end up fighting," Andy Mayoras said. "But, especially in this economy, families are fighting over money more and more."
Nass contends that neglect of an estate plan may have cost one wealthy New Yorker his life. Wall Street titan Ted Ammon, in the throes of an acrimonious 2001 divorce, was killed by his estranged wife's boyfriend, Nass said. The boyfriend went to prison, but the estranged wife got the estate because Ammon hadn't yet changed his will.
"That was big news out here for a long time," he said.
What do you need? First and foremost you need a will, which distributes your assets at death. Wills can be simple -- a matter of a few paragraphs -- or very complex. It depends on your wishes and whether you expect to draw up additional documents, such as a trust.
If you don't want a trust, your will should name personal guardians for any minor children, economic guardians who can distribute assets to your children and other heirs, and an executor who will make sure the terms of the will are carried out. Finally, it should include a simple statement about what you own and who should get it.
If you're leaving assets through a will, it's wise to also execute powers of attorney for both financial and healthcare matters, Stevens adds. That will give somebody you trust the ability to pay your bills and make medical decisions for you if you become incapacitated before you die.
But if you want your heirs to be able to avoid probate -- a time-consuming and costly legal process that involves a court reviewing the distribution of assets bequeathed through a will -- you'd be better off to also create a trust. If you have a trust, your will essentially can be a one-liner: "I want all my nonretirement assets to go into my trust."
