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Personal Business: Finances
FIRST THINGS FIRST: A LAST WILL AND TESTAMENT
When Chase Manhattan Bank Vice-President Tamara Telesko counsels her private banking clients about estate planning, she encounters little resistance to complex trust arrangements or joint-tenant property ownership. "But start talking about the need for a will, and people shy away," she says. "Some won't even think about one until they're hit by the death of a close friend."
It's a common mistake--60% of adults die without a will. But if you don't have one, your assets may end up in the hands of someone other than the people you intended. That alone should be enough to counter the typical excuses people offer for putting off the chore.
LIVING TRUST. Some fear the cost, even though a routine will runs only a few hundred dollars, and the fee for even a sizable estate isn't apt to be more than $2,500. More sophisticated procrastinators may cite the arguments in such books as Norman Dacey's longtime best-seller, How to Avoid Probate! or a recent paperback, Stop Probate Now! by financial consultants Warrick Graves and Joseph Leff.
Such books contend that the expenses of probate, which is when a court validates a will's legality, can eat up a big chunk of your assets -- 4% to 6% of a large estate, more on a small one. They suggest transferring property through a revocable living trust instead. While you're alive, you place stocks, real estate, and other assets in the trust. Also, as a trustee or co-trustee, you manage the assets. And because you've named yourself beneficiary of the trust proceeds, you can distribute them to yourself. At your death, the assets in the trust pass to one or more people you have named as beneficiaries, without going through probate.
"Passing on property with a living trust has become the biggest competition to doing it through a will," says lawyer Maurice Spanbock, senior partner at Carro, Spanbock, Kaster & Cuiffo in New York. But not everything you own in life will have been placed in trust at the time of your death, he points out. So you still need a will--one that includes what's known as a pour-over clause. "Basically, it states: 'Everything I own at the time of my death I bequeath to the successor trustee,' " says Spanbock. Usually, that's your spouse, lawyer, banker, or another person who doles out the assets.
Spanbock believes people in their 40s or 50s could err if they set up a living trust primarily to avoid probate expenses. For one thing, the costs of preparing the documents, registering every asset in the trust's name, and having a bank or other trustee administer it over the years may equal or surpass probate fees. Where probate lawyers once charged a percentage of the gross estate equivalent to an executor's fee (1% to 3%), most now bill on a per-hour basis. "But costs aside," Spanbock says, "middle-aged people who set up trusts have to keep modifying the arrangement every time their holdings change. Over 20 or 30 years, it can amount to a lot of attention and work."
GUARDIAN ANGEL. It's also a good bet that a trustee responsible for administering money and property might not wish to be saddled with dispersing prized but relatively worthless furniture, cars, old letters, and other items of sentimental value. A will is the simpler way of taking care of that, says Stanley Breitbard, director of personal financial services at Price Waterhouse in New York. But don't pay for a lawyer's time to detail who gets what in the will, he advises. Instead, leave the items to your spouse or another trusted person who has been provided with a letter of instruction.
One of the most important features that distinguishes a will from a trust and other estate-planning documents is that it concerns people, not money. A key role is to state who it is you want appointed as legal guardian for your children if they become orphaned. Frequently, two guardians are named--one to raise and educate the kids, another to look after their financial interests.
Telesko says couples should settle the question of guardianship before they even start to discuss who gets what. "Sometimes the husband will offhandedly name 'my sister and her husband' as guardian, and the wife will agree. She realizes only later that if the sister dies, the hated brother-in-law will be in charge," Telesko says. Once, she recalls, a couple refused to sign their wills because they couldn't agree on a guardian. That's a thorny issue for many couples, but it's best to compromise, if only to complete the will. The question of guardianship can always be settled, and the will amended, a little later on.
Whatever your will says, the statements should be clear and direct. Never leave room for doubt about your intentions, says Albert Podell, a New York lawyer who litigates wills. If you decide to disinherit someone, state your exact reasons for doing so. Don't merely leave the person out of the will. It can be challenged on the ground that you made an oversight. And saying "I leave nothing to my son John" isn't enough, either. He might successfully contest the will by claiming you were unduly influenced by other heirs.
The chance of error rules out a do-it-yourself approach to will-making. If any part of the document is incorrect, "the entire will can be invalidated," says Stephen Kornreich, a New York attorney who specializes in will preparation. "Then the state's laws of intestacy take over, as if you had died without a will."
Computer software or books of fill-in-the-blanks legal forms sell for less than $100 but could cost your heirs much more. For instance, your homemade document may not be valid everywhere. And you may run into problems if you don't realize that certain states, such as Louisiana, Maine, and New Hampshire, require three witnesses instead of two. (For safety, always have three people witness your signature, in the event you move to or buy real estate in a three-witness state.) Procedures must be followed exactly, too: If you sign your will first and then go next door to have your neighbor sign as a witness, a challenge could be raised on the ground that no one actually saw you put pen to paper.
PREVIEW TIME. Writing a paragraph that disinherits your spouse would also be grounds for declaring a will invalid. Depending upon where you live, he or she is entitled to one-quarter or one-half of your estate, no matter what your wishes are.
To avoid a contest or confusion, it's a good idea to discuss any contemplated bequests with your executor and, in some cases, with your heirs. Suppose that you decide to leave your house to two children -- raising the possibility of a battle over who gets to live in it. Your will can instruct the executor to sell the house within a set period and divide the proceeds of the sale equally.
In a survey of potential heirs by Neuberger & Berman, a New York investment management firm, 58% thought prior knowledge of an inheritance's details would "avoid conflict and controversy later." Nearly two-thirds said they had already discussed their wills with family members, or planned to--as soon as they got around to drawing one up.WHEN IT'S TIME TO REVIEW YOUR WILL
-- You move to another state, which might have different estate-tax laws that
affect your plans
-- Your family changes through marriage, divorce, the birth of a child, or the
death of a prospective heir
-- Your life insurance, property ownership, or employee benefits change
-- The person you name as executor, guardian, or trustee is unwilling or
unable to serve in that capacity
WHERE THERE'S A WILL, THERE SHOULD ALSO BE A...
The value of your estate can be greatly reduced if you require extraordinary,
costly medical measures to extend your life. With a living will, you can
express your wish to dispense with life-support procedures in cases of terminal
illness, prolonged coma, or serious incapacitation. A lawyer can advise you on
your state's requirements, such as how many witnesses you need and whether the
statement must be notarized. You can also obtain information and forms from
Choice in Dying, 250 West 57th St., New York, N. Y. 10107.
DURABLE POWER OF ATTORNEY This document is designed to protect you in case you
become incapacitated or are declared incompetent to handle your financial
affairs. It lets you name a representative to act for you, instead of relying
on a court to appoint a conservator or guardian. The person who holds your
durable power of attorney should be someone you trust implicitly. Upon
recovery, you regain full control of your affairs. Should you die, the validity
of any power of attorney ends.
EDITED BY AMY DUNKIN; Don Dunn