Retirement Step 11: Keep It in the Family

One moment we're enjoying life to the fullest, and the next ... well, accidents do happen. We may not know when we'll shuffle off the mortal coil, but as Fools, we've got to be prepared for the possibility. That means estate planning, wills, trusts, and a whole bunch of other scary and/or depressing-sounding things. They may not be fun to consider, but they're necessary to spare our loved ones needless heartache, and protect them when we're gone.

Where there's a will...
It's no secret that every adult needs a will. Die without one, and the state decides what happens to your property. Sadly, the state's wishes and your own will rarely coincide. A will lets you divvy up your estate on your own terms, so be a Fool and see an attorney to complete one. It isn't that expensive to prepare, and it ensures that your property will be distributed in accordance with your wishes.

Don't use a preprinted, fill-in-the-blanks form will bought from a stationery shop or created through some of the software programs available for this purpose. These are often out-of-date and may not conform to the laws of your state. Any pennies you say may cost others thousands of dollars after you die.

Do see an attorney. After you complete the will, ensure you review it every five years, at a minimum, to verify its validity and conformance with state law.

What counts as an estate asset?
Basically, everything you own, including the face value of life insurance policies and the current value of all your retirement plans, is a part of your estate. You may pass an estate of unlimited value to your spouse at death with no unfavorable tax consequences. When that spouse dies, though, your children could face heavy taxes on whatever's left.

In 2013, you may leave up to $5.25 million tax-free to heirs who are not your spouse. If you leave those heirs anything above that, the excess will be taxed at a 40% rate. $5.25 million sounds like a lot, doesn't it? But count the value of your retirement plans, your home, the face value of life insurance you own, and everything else, and that amount is readily reachable by many. Couples must begin to worry about the possibility of estate tax when their combined assets approach this figure. In today's world, with two workers in the family, many estates can and will reach this level. To protect the kids from the IRS, you've got to see a lawyer.

You've got the power (of attorney)
What if you become incapacitated, either mentally or physically? You might want to look into a durable power of attorney granted to someone you trust, such as your spouse or an adult child. You may also want to add a medical power of attorney. Both will allow the person you select to make decisions on your behalf. Without those documents, your family will be forced to hire an attorney, go to court, and have someone appointed as your conservator and/or guardian to make decisions and conduct business on your behalf. That's a needless, time-consuming, and costly process that can be avoided with one or two inexpensive documents that an attorney can prepare today.

Lastly, you may want to execute a living will. It's a silly name for a document that really says you want the right to die a natural death free of all costly, extraordinary efforts to maintain your life, provided that life can only be sustained by artificial means. This document is free in virtually every hospital in the nation. It makes such decisions easier on the doctor, the hospital, and your family. Used in conjunction with a medical power of attorney, this tool can spare your family a painful, drawn-out, and costly process. If you agree with this concept, visit your local hospital, pick up the form, complete it, and let your loved ones know where it can be found.

Estate planning encompasses much more than a will. It may be true that you can't live with lawyers, but you certainly can't die without them. Use their talents to ensure you won't take any fiscal regrets with you to the afterlife. Estate planning isn't fun, but it's definitely necessary.

Now let's take a stab at Step 12: examining your insurance.

The article Retirement Step 11: Keep It in the Family originally appeared on Fool.com.

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