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Station 7 - The end of the day:
Estate planning || Wills and estates || Trusts || Probate || Funeral costs || Preplanning funerals || Teach your children

Estate planning is one of the most important steps any person can take to make sure that their final property and health care wishes are honored, and that loved ones are provided for in their absence. Though often overlooked or put off in favor of more immediate concerns, a comprehensive estate plan can resolve a number of legal questions that arise whenever anyone dies: What is the state of their financial affairs? What real and personal property do they own? Who gets what? Does a personal guardian need to be appointed to care for minor children? How much tax will need to be paid in order to transfer property ownership? What funeral arrangements are appropriate?

What is an "estate"?

Your "estate" consists of all property owned by you at the time of your death, including:
* Real estate
* Bank accounts
* Stocks and other securities
* Life insurance policies
* Personal property such as automobiles, jewelry, and artwork

How can an estate plan help?

Regardless of your age, or the size and complexity of your estate, an estate plan can accomplish the following:
* Identify the family members and other loved ones that you wish to receive your property after your death.
* Ensure that your property will be transferred to those you have identified, as quickly and with as few legal hurdles as possible.
* Minimize the amount of taxes that will need to be paid in order for your property to pass to others after your death.
* Avoid the time and costs associated with the probate process by utilizing estate planning devices like living trusts and "payable on death" bank accounts.
* Dictate the kinds of life-prolonging medical care you wish to receive should you be unable to make your wishes known when the time comes.
* Set forth the kind of funeral arrangements you would like, and how related expenses are to be paid.

Understanding the estate plan options that are right for you can be a complex undertaking. The resources in FindLaw's Estate Planning Center can help you identify your estate planning needs, recognize potential solutions, and locate an experienced Estate Planning attorney to help you at every step of the estate planning process.

Getting legal help with your estate plan

An experienced estate planning attorney can explain all options available to you in meeting your estate planning goals and fulfilling the needs of your loved ones -- whether you need to revise an existing will or create a comprehensive estate plan from scratch. For skilled legal help with your estate plan, use the West Legal Directory to search for a law firm or attorney near you.

Wills are the most common way for people to state their preferences about how their estates should be handled after their deaths. Many people use their wills to express their deepest sentiments toward their loved ones. A well-written will eases the transition for survivors by transferring property quickly and avoiding many tax burdens. Despite these advantages, many estimates figure that at least seventy percent of Americans do not have valid wills. While it is difficult to contemplate mortality, many people find that great peace of mind results from putting their affairs in order.

Wills vary from extremely simple single-page documents to elaborate volumes, depending on the estate size and preferences of the person making the will (the "testator"). Wills describe the estate, the people who will receive specific property (the "devisees"), and even special instructions about care of minor children, gifts to charity, and formation of posthumous trusts. Many people choose to disinherit people who might usually be expected to receive property. For all these examples, the testator must follow the legal rules for wills in order to make the document effective.

Will requirements

Formal requirements for wills vary from state to state. Generally, the testator must be an adult of "sound mind," meaning that the testator must be able to understand the full meaning of the document. Wills must be written. Some states allow a will to be in the testator's own handwriting, but a better and more enforceable option is to use a typed or pre-printed document. A testator must sign his or her own will, unless he or she is unable to do so, in which case the testator must direct another person to sign the will in the presence of witnesses, and the signature must be witnessed and/or notarized. A valid will remains in force until revoked or superseded by a subsequent valid will. Some changes may be made by amendment (called a "codicil") without requiring a complete rewrite.

Will limitations

Some legal restrictions prevent a testator from giving full effect to his or her wishes. Some laws prohibit disinheritance of spouses or dependent children. A married person cannot completely disinherit a spouse without the spouse's consent, usually in a pre-nuptial agreement. In most jurisdictions, a surviving spouse has a right of election, which allows the spouse to take a legally-determined percentage (up to one-half) of the estate when he or she is dissatisfied with the will. Non-dependent children may be disinherited, but this preference should be clearly stated in the will in order to avoid confusion and possible legal challenges.

Some property may not descend by will. Property owned in joint tenancy may only go to the surviving joint tenant. Also, pensions, bank accounts, insurance policies and similar contracts that name a beneficiary must go to the named party.

Appointing a representative

A will usually appoints a personal representative (or "executor") to perform the specific wishes of the testator after he or she passes on. The personal representative need not be a relative, although testators typically choose a family member or close friend, as well as an alternate choice. The chosen representative should be advised of his or her responsibilities before the testator dies, in order to ensure that he or she is willing to undertake these duties. The personal representative consolidates and manages the testator's assets, collects any debts owed to the testator at death, sells property necessary to pay estate taxes or expenses, and files all necessary court and tax documents for the estate.

Choosing a guardian

Testators who have minor or dependent children may use a will to name a guardian to care for their children if there is no surviving parent to do so. If a will does not name a guardian, a court may appoint someone who is not necessarily the person whom the testator would have chosen. Again, a testator usually chooses a family member or friend to perform this function, and often names an alternate. Potential guardians should know they have been chosen, and should fully understand what may be required of them. The choice of guardian often affects other will provisions, because the testator may want to provide financial support to the guardian in raising surviving children.

When no valid will exists

If a person dies without a valid will and did not make alternative arrangements to distribute property, survivors may face a complicated, time-consuming, and expensive legal process. Dying without a will leaves an estate "intestate," and a probate court must step in to divide up the estate using legal defaults that give property to surviving relatives. The court pays any unpaid debts and death expenses first, then follows the legal guidelines. The rules vary depending on whether the deceased was married and had children, and whether the spouse and children are alive.

If the intestate individual has no surviving spouse, children, or grandchildren, the estate is divided between various other relatives. Therefore, intestacy may mean that people who would never have been chosen to receive property will in fact be entitled to a portion of the estate. Additionally, state intestacy laws only recognize relatives, so close friends or charities that the deceased favored do not receive anything. If no relatives are found, the estate typically goes to the state or local government. Intestacy also poses a heavy tax burden on estate assets. When made aware of the consequences of intestacy, most people prefer to leave instructions rather than subject their survivors and property to government-mandated division.

Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during life. A trust manages the distribution of a person's property by transferring its benefits and obligations to different people. There are many reasons to create a trust, making this property distribution technique a popular choice for many people when creating an estate plan.

Creation of a trust

The basics of trust creation are fairly simple. To create a trust, the property owner (called the "trustor," "grantor," or "settlor") transfers legal ownership to a person or institution (called the "trustee") to manage that property for the benefit of another person (called the "beneficiary"). The trustee often receives compensation for his or her management role.

Trusts create a "fiduciary" relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If a trustee does not live up to this duty, then the trustee is legally accountable to the beneficiary for any damage to his or her interests.

The grantor may act as the trustee himself or herself, and retain ownership instead of transferring the property, but he or she still must act in a fiduciary capacity. A grantor may also name himself or herself as one of the beneficiaries of the trust. In any trust arrangement, however, the trust cannot become effective until the grantor transfers the property to the trustee.

Example: A grantor transfers money to a bank as trustee for the grantor's children, with the bank instructed to pay the children's college expenses as needed; the bank carefully manages the money to ensure there are funds available for this purpose. The children do not have control of the funds and cannot use the funds for any other purposes.

Testamentary and living trusts

Trusts fall into two broad categories, "testamentary trusts" and "living trusts." A testamentary trust transfers property into the trust only after the death of the grantor. Because a trust allows the grantor to specify conditions for receipt of benefits, as well as to spread payment of benefits over a period of time instead of making a single gift, many people prefer to include a trust in their wills to reinforce their preferences and goals after death. The testamentary trust is not automatically created at death but is commonly specified in a will and so as a will provision, the trust property must go through probate prior to commencement of the trust.

Example: A parent specifies in her will that upon her death her assets should be transferred to a trustee. The trustee manages the assets for the benefit of her children until they reach an age when the parent believes they will be ready to control the assets on their own.

A living trust, also sometimes called an "inter vivos" trust, starts during the life of the grantor, but may be designed to continue after his or her death. This type of trust may help avoid probate if all assets subject to probate are transferred into the trust prior to death. A living trust may be "revocable" or "irrevocable." The grantor of a revocable living trust can change or revoke the terms of the trust any time after the trust commences. The grantor of an irrevocable trust, on the other hand, permanently relinquishes the right to make changes after the trust is created. A revocable trust typically acts as a supplement to a will, or as a way to name a person to manage the grantor's affairs should he or she become incapacitated. Even a revocable living trust usually specifies that it is irrevocable at the death of the grantor.

Transferring assets

Irrevocable trusts transfer assets before death and thus avoid probate. However, revocable trusts are more popular as a means of avoiding the probate process. If a person transfers all of his assets to a revocable trust, he owns no assets at his death. Therefore, his assets do not have to be transferred through the probate process. Even though the grantor of the trust died, the trust did not die, so the trust assets do not have to be probated.

However, trusts avoid probate only if all or most of the deceased person's assets had been transferred to the trust while the person was alive. To allow for the possibility that some assets were not transferred, most revocable living trusts are accompanied by a "pour- over" will, which specifies that at death, all assets not owned by the trustee should be transferred to the trustee of the trust.

Example: Mark sets up a revocable trust, which states that on his death, his assets should be distributed to his children in equal shares. Mark transfers his house to the trust, but does not transfer some rental real estate he owns. At Mark's death, the trust can distribute the house outside of the probate process, but the rental real estate will have to be probated. Based on the will, the probate court will order the rental real estate be transferred to the trustee, who will then distribute it according to the terms of the trust.

Successor trustees

Although a grantor may name himself as trustee of a living trust during his lifetime, he should name a successor trustee to act when he is disabled or deceased. At the grantor's death, the successor trustee must distribute the assets of the trust in accordance with the directions in the trust document. In many states, certain people must be notified at the death of the grantor.

Getting help with a trust

Trusts have important tax, governmental assistance, probate, and personal ramifications, so an experienced estate planning attorney should be consulted at all stages of the process -- from preliminary discussions to execution of trust documents. Go here to find a knowledgeable estate planning attorney near you.

The legal process of transferring of property upon a person's death is known as "probate." Although probate customs and laws have changed over time, the purpose has remained much the same: people formalize their intentions as to the transfer of their property at the time of their death (typically in a will), their property is collected, certain debts are paid from the estate, and the property is distributed.

Probate administration

Today the probate process is a court-supervised process that is designed to sort out the transfer of a person's property at death. Property subject to the probate process is that owned by a person at death, which does not pass to others by designation or ownership (i.e. life insurance policies and "payable on death" bank accounts). A common expression you may have heard is "probating a will." This describes the process by which a person shows the court that the decedent (the person who died) followed all legal formalities in drafting his or her will.

What is often taught about the probate process is how to avoid it. The movement to avoid probate is primarily motivated by the desire to avoid probate fees. It is, in fact, quite possible to avoid the probate process completely. There are three primary ways to avoid probate and its protections: joint ownership with the right of survivorship, gifts, and revocable trusts. The probate system, however, exists for the protection of all the parties involved and the focus of this article is what occurs in probate.

What happens in probate?

The probate process may be contested or uncontested. Most contested issues generally arise in the probate process because a disgruntled heir is seeking a larger share of the decedent's property than that he or she actually received. Arguments often raised include: the decedent may have been improperly influenced in making gifts, the decedent did not know what they were doing (insufficient mental capacity) at the time the will was executed, and the decedent did not follow the necessary legal formalities in drafting his or her will. The majority of probated estates, however, are uncontested.

The basic process of probating an estate includes:
* Collecting all probate property of the decedent
* Paying all debts, claims and taxes owed by the estate
* Collecting all rights to income, dividends, etc.
* Settling any disputes
* Distributing or transferring the remaining property to the heirs.

Usually, the decedent names a person (executor) to take over the management of his or her affairs upon death. If the decedent fails to name an executor, the court will appoint a personal representative, or administrator, to settle the estate. The administrator will fulfill many of the same duties listed above.

Typically, people may leave property to any person they wish, and may make such designations in their will. However, in certain situations, depending on the relationship to the decedent and the laws of the state, the decedent's wishes may have to be overridden by the court. For example, in most states, a spouse is entitled to a certain amount of property. Furthermore, creditors may have a claim on the property of the estate.

Each jurisdiction usually prescribes how long an estate must be open to give creditors an adequate time frame in which to present claims to the estate. The more complex and sizable the estate, the longer and more time-consuming this process can be.

The probate process itself also carries with it a number of costs that are usually paid out of estate assets. These costs include:
* Fees of the personal representative * Attorneys' fees
* Court costs

Why Do I Need a Will?

A will is simply a formal way of setting forth your wishes regarding how you would like your property distributed upon your death. You should consider a will whether you are single, married, have minor children, or own even a small amount of personal assets or property. In fact, every adult should have a will or other means to control the disposition of their assets. If you have not formalized your intentions, your estate may meet with unnecessary and costly litigation, adding to the grief experienced by your survivors. Avoiding the financial and emotional turmoil of will contests and other legal wrangling starts with choosing an experienced estate planning attorney.

According to most sources, the cost of a funeral is one of the three or four most expensive consumer purchases. Traditional Funerals can cost upwards of $15000. They definitely don't have to be so expensive, and there's no reason (other than stubborn sentimentalism) to believe that paying so much for a funeral is somehow a sign of love for the departed.

Many morticians or funeral homes will shy away from telling you that you can have a perfectly legitimate funeral, complete with a fine casket, for under $2500. A number of places advertise 'low cost funerals' for under $2000, and these funerals provide the same sense of memorial as the more expensive ones. They may even be seen as a more appropriate way to honor sensible or more frugal minded decedents.

Cost facts

In accordance with The Funeral Rule set out by the FTC, funeral providers must give you a statement of all costs of the funeral goods and services that you select. This is called a General Price List (GPL). If the funeral director doesn't know the costs, you must be given a written 'good faith estimate'. This statement doesn't have to be in a specific format, though providing the list up front is a sign of good business practices. The Funeral Rule covers American funerals only, but many Canadian provinces also make it mandatory to disclose all costs ahead of time.

Cost breakdown

Funeral costs can be divided into three basic categories: - The basic service fee: Funeral providers are allowed to charge this, and it can't be declined by consumers. This fee covers services common to all funerals including the use of the home, the services of the funeral director and funeral home attendants, burial arrangement coordination (with a cemetery or other), securing permits, etc.
- Optional service charges: Some optional services include transporting the body, embalming, times for viewing (or wakes), use of a hearse or limousine, burial container, cremation and interment.
- Cash disbursements: This covers goods and services that the funeral home buys on your behalf, with your consent. It may include the purchase of flowers, clergy services, obituary notices, pallbearers and other service providers such as soloists or musicians.

Your expenditures

When it comes to funeral expenses you should definitely shop around and find the best prices. You might want to find a trusted funeral home to help you with your decisions, but you have to remember that they'll have their own interests in your purchases and might not lead you to the best values. The most important thing to remember is that the cost of the funeral isn't related to how much you cared for or respected the deceased. You shouldn't deal with anyone who tries to guilt you into overspending in this way.

Funeral pre-planning (personal funeral planning) is a wise practice that's becoming increasingly accepted and appreciated. People are sometimes hesitant to pre-plan a funeral because they think they're not going to die anytime soon, or they may not like the idea of thinking about their own death and funeral. There may even be some superstition that planning your own funeral will somehow bring on a hasty death. However, many people who get over their initial resistance to the idea actually find funeral planning to be a freeing experience. You're able to make sure things are done in the way you'd like them, and you'll know that you're relieving your loved ones of some very burdensome future responsibilities.

You can begin the funeral planning process long before you are even close to death. If you're ill or in the process of dying, funeral planning can be a proactive way of dealing with the inevitable.

There's a growing organization of information concerning less-than- scrupulous business practices and over-selling in the funeral industry. If you pre-plan your funeral before the stress and chaos of death occurs, you can avoid exposing your family the funeral home sales tactic of equating the money spent on a funeral with their amount of love for the deceased.

Pre-planning your funeral lets everyone know what you want and you leave no room for up-selling or over-selling. More benefits of funeral planning include:
- Being forthright about your desires for your funeral will relieve your family of the burden of having to make decisions in their time of grief.
- Prepaying for your funeral will also offer some relief to your loved ones. You have to be aware of some of the pitfalls of this process though.
- A lot of people buy into the idea that the amount of money spent on a funeral is a reflection of the amount of love for the deceased. Prepaying decreases the stress of this aspect of funeral planning.
- Making a will is a fundamental benefit to your family. You can add funeral arrangement preferences into your will.

Finding enlightenment through pre-planning

When you really get into it, planning your own funeral can be a great experience. Many people who've done so have found it to be a helpful process, as they know they're lightening the load of their own passing for their loved ones.

There are a number of factors you can take care of when you're pre- planning your funeral. Just to name a few, you can decide on your own non-traditional memorial, you can personalize your funeral or write your own epitaph. You can also even pre-purchase a custom casket or make your own.

Your first steps

If you're considering funeral planning, here are some of the first steps you'll have to take:
- Write a will
- Consider all aspects of a pre-need funeral
- Research financial options like funeral insurance

Like learning to read, financial literacy is a long-term process that best starts in early childhood. This means taking the time to educate our children in the fundamentals of money management, just as we prepare our children for other skills in adulthood. We cannot assume our children will learn good money attitudes and skills unless we take the time to teach them.

A key to raising responsible children in affluence is finding or creating 'teachable moments' in everyday life when money lessons can be learned. Most people think wealth brings more of these moments than in middle-class life. Unfortunately, the opposite is true.

The modern conveniences of wealth actually make these moments more elusive, stealing opportunities for children to gain money skills. Young children must first learn about money as a tangible thing -- holding, counting, giving away, and receiving money as part of life. This includes experience making choices about purchases and encountering limits when one has spent all the cash on hand. Mastering these basic skills with cash lays the groundwork for later being able to make the transition safely to more abstract money transactions using credit cards, ATMs and check-writing.

Children in this pre-adolescent stage are very interested in learning about money and may be more teachable than they will be during adolescence. Making it a game, they will enjoy being shown how to calculate tips in a restaurant, how quickly they can estimate 25% off in a sale, or how to compare the value of two sizes of snack foods.

A powerful teaching tool can be an allowance. Why? It is invaluable as "a tool for teaching children how to manage money," according to Joline Godfrey, author of Raising Financially Fit Kids. An allowance is a constant source of teachable moments, giving you as a parent a way to foster your child's financial training. Approaching an allowance this way shifts the focus from what the child has done to "get" the money towards what the child plans to "do" with the money.

Many wealth counselors1 advocate the "Three Bucket Model":
- one-third paid in cash, to be spent as the child sees fit (weekly for young children, biweekly or monthly by the teenage years)
- one-third deposited in a bank account or entered in a money- management program like Quicken, to be built up in savings.
- one-third deposited or set aside for charitable uses, to teach philanthropy.

This system teaches many lessons at once. It underscores that the family's values include not only spending but also saving and philanthropy. By devoting a portion toward savings, it teaches delay of gratification and long-term planning. And it provides a vehicle for children to practice making their own decisions about money safely, learning from both successes and setbacks.

The teenage years (ages 13-18) pose special challenges for financial parenting, particularly if you've let those earlier opportunities slide by. The calmer waters of childhood give way to the fast-moving currents of adolescence. Your kids may turn into people you barely recognize, making increasingly risky decisions even they may regret later. Teachable moments evaporate as peers and the media take over as major influences.

How to foster your teenager's training in financial literacy

Information: Use TV and print ads as teachable moments about interest rates, both as fees in credit cards and loans and as income from bank CDs and bonds. Talk about compound interest. Demonstrate online investment tracking. Explain how to read monthly statements, starting with a smaller account that may already be in the child's name. Teach your child how to write checks and balance a checkbook, even if these responsibilities can be delegated later in life.

Values: In retelling the family history of howthe wealth was created, emphasize the work and risk that were undertaken, not to instill guilt but to teach that work and risk are fundamentals of success. As purchases get more expensive (cars, travel, parties), make your teen subsidize more of their cost. This demonstrates that the family hands over greater responsibility as the next generation matures.

Decision-making: Teenagers can be naturalborn debaters, not always to their benefit. Foster healthy decision-making by prompting your teenagers to "make their case" responsibly when they want something new, whether a BMW or a trip to Italy. This should not be an exercise in glib argument. Have them truly explain the reasoning behind requests, showing they've looked at costs, benefits, and alternatives. Stay open but firm. They will gradually learn how to think carefully about choices. You will be rewarded when they are able to drop an extravagant request after they've truly explored things. Of course, sometimes a purchase goes against deeply-held family values. Then it's time to say, "No," with an explanation. This way, you teach the crucial lesson that life doesn't fulfill every wish, even for wealthy children.

Teaching your children about how finances work is a lifelong endevour and cannot be encapsulated in a small article. Below is a list of some further resources which you may find useful in passing on critical skills to your children and other family members:

Gallo, Eileen and Jon Gallo. Silver Spoon Kids: How Successful Parents Raise Responsible Children. New York: Contemporary Books, 2002.

Gallo, Eileen and Jon Gallo. The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children. New York: New American Library, 2005.

Godfrey, Joline. Raising Financially Fit Kids. Berkeley CA: Ten Speed Press, 2003.

Hausner, Lee. Children of Paradise: Successful Parenting for Prosperous Families, Second edition. Irvine, CA: Plaza Press. 2005.

Salzer, Myra. The Inheritors' Sherpa: A Life- Summiting Guide for Inheritors. The Wealth Conservancy, 2005.

Willis, Thayer Cheatham. Navigating the Dark Side of Wealth: A Life Guide for Inheritors. Portland, Oregon: New Concord Press, 2003.