Have You Prepared For End Of Life?

When you face your biggest fear, you are free to truly live. 

Your 5-minute guide to estate planning

Use these 23 tips to help carry out your wishes, whether you're rich or just hanging on.

Even though most estates won't owe Uncle Sam, estate planning is essential for protecting you and your loved ones. 

Most important? Providing for minor children. Your will should name both a guardian and a financial trustee for your kids in case you and your spouse die. (See "14 mistakes not to make with your will.")

To provide checks and balances, the guardian and the trustee should not be the same person. 

Don't name a couple as guardian. They could split up or disagree about what's right for your child. (See "Who will take care of your kids if you die?")

Your child's other parent, even if you're porced, will get custody if you die, unless that person is unfit because of mental illness or addiction. 

Your will

What else should -- and shouldn't -- be in a will? If you don't designate beneficiaries, the state will decide how to split up your estate, which can be time-consuming.

A simultaneous death clause will pass your estate to your children if your spouse dies shortly after you do. 

Many states require that a third or half of your estate goes to your spouse, even if your will specifies a smaller share.

If you want children from a prior marriage to benefit from your estate, don't leave everything to your current spouse. A bypass trust provides regular income for a surviving spouse until death. Then the assets go to the children.

If you want to disinherit a child, spell that out in the will.

Avoid tying bequests to an heir's behavior. (See "6 tips to ensure your last wishes.") A testamentary trust or spendthrift trust in the will can control how money is distributed so an irresponsible heir can't blow it all at once.

Keep current the designated beneficiaries on retirement and life insurance accounts so those assets don't become a part of your will. A 401k automatically passes to the surviving spouse unless that spouse has signed a waiver.

Consider simplifying your will by giving away assets before you die, holding them in joint tenancy or transferring ownership to a trust. Starting in 2009, you can gift as much as $13,000 annually to as many people as you want, and you can pay someone's education and medical expenses directly to the providing institution, without triggering federal gift tax. (For more, see the IRS FAQ page on the gift tax.) 

Review your will -- and life insurance -- after major life changes. (See "Marriage means updating vital papers.") If you remarry, consider a prenuptial agreement. (See "Late-in-life marriages worry heirs.") If you move, remember that estate laws vary from state to state.

Name an executor and a backup. (See "12 easy steps to preparing your estate plan.") 

 Video: Estate planning for new parents

Fulfilling your final wishes

An executor is responsible for valuing assets, paying off debts and taxes, and distributing what's left in accordance with the will. (See "Executors can inherit an unholy mess.") 

File the will for probate, which is a court review of the will, in a timely fashion, usually 30 days. (State laws vary on the timing, as well as the size of estate subject to probate.) 

Search the decedent's home thoroughly. Important documents and valuables could be hidden in dresser drawers or old shoes. Hopefully, financial records, including computer passwords and PINs, are in one secure location. If they're in a safety-deposit box, you may need a court order to open it. (See "Don't take your passwords to the grave.")

Change the name on the homeowners insurance policy to the estate. (See "Clearing out Dad's house.") Pay the mortgage and utility bills, and change the locks. 

Prepare the house for sale. The costs of improvements can offset taxable gains from the sale. 

Get a receipt for donated items. Use the Salvation Army's valuation guide. The American Society of Appraisers accredits professional personal-property appraisers.

Taxes

Now, more about taxes. In 2009, only the portion of an estate over $3.5 million is subject to federal estate tax. The tax disappears in 2010, but will return in 2011 with a $1 million threshold unless Congress decides otherwise. (See "2010: The best year to die?") 

According to the IRS, only the wealthiest 2% pay federal estate tax. Some states have an estate tax as well as inheritance tax paid by heirs. (Bing: Find estate and inheritance taxes by state.)

Assets left to a spouse aren't included in the taxable estate. Other deductions include charitable gifts, debt, funeral expenses and the cost of settling the estate. (See the IRS FAQ page on the estate tax.)

Estate-tax obligations can be reduced in several ways, including a bypass trust, an irrevocable-living trust, a life insurance trust and a charitable-remainder trust. (See Fast Answers: Retirement & Wills.)

Still breathing?

What if you're alive but unable to make decisions? (See "3 legal papers you shouldn't live without.") 

Prepare a durable power of attorney for finances, a living will and, because living wills aren't always enforceable, a proxy for health care. (See "3 all-too-common flaws of living wills.") Also consider a living trust. 

Finally, know your rights when you're planning a funeral. 

Read the Federal Trade Commission's Funerals: A Consumer Guide and visit the Funeral Consumers Alliance Web site. 

Save on expenses with direct cremation. (See "Plan a funeral for $800 or less.") 

Updated Nov. 3, 2009

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