It's Never Too Early for Estate Planning
by Marcus M. Moreno

For many people in their 20s and 30s, "estate planning" may not yet be a priority. As a matter of fact, the term often conjures up images of older, wealthy investors with mansions passing along their estates to their numerous heirs. What most people don't realize is that estate planning can truly be for everyone. Here are a few pointers to demystify the estate-planning process and help get you started.

Elements of Estate Planning. No matter your net worth, it's important to have an estate plan in place. It ensures that your plans for your family and your assets are met during life and after you die. An estate plan often times includes several important elements, including a will, living will, power of attorney assignment, a health care proxy and, sometimes, a trust.

Where to Begin. Taking inventory of your assets is a good place to start. Assets include your personal property, investments, retirement savings, insurance policies, real estate and business interests. Make a list of all your assets and your liabilities.
Your liabilities, such as a mortgage, credit cards or a student loan must be paid at your death. What's left over, minus possible taxes (ie. estate, gift and income) administrative and probate costs, is what your beneficiaries will receive.

Then ask yourself these important questions: Whom do you want to inherit your assets? Whom do you want handling financial affairs if you are incapacitated? Whom do you want making medical decisions for you if you are unable to make them for yourself? If you have children, whom do you want to take care of your children?

Wills. It may surprise you to learn that, according to Consumer Reports, 70 percent of American adults don't have wills. If you die suddenly without a will, you will leave your family with a lot of confusion during a very difficult time. For example, without a will the laws of each state determine who becomes responsible for your children.

A will names an executor and, if you have children, a guardian. To reduce the likelihood of your estate being drained by legal bills, your will should spell out how you want your property distributed as specifically as possible.

Trusts. A living trust, sometimes called a "will substitute," can be more effective than a will. One of its advantages is that it transfers your assets to your heirs without having to go through probate - the process by which a court examines your will declares it valid, distributes your property, and makes sure your assets are distributed correctly. That's an advantage since probate often can drag on for months or even longer. Also, probate is a public process, but a living trust is private - an advantage if you don't want people knowing what is in your estate, how much it is worth and how your estate is allocated.

Tax Implications. In creating your estate plan, keep in mind that the laws governing estate plans are not set in stone. In fact, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made several sweeping changes that are being phased in over a 10-year period, including a gradual increase in the estate-tax exclusion. Thanks to this legislation, in 2002-2003, you can leave bequests (gifts to others upon your death) worth up to $1 million free of any federal estate tax. If you are married, both you and your spouse are entitled to separate $1 million estate tax exclusion. This figure is scheduled to increase in stages over the next few years: to $1.5 million in 2004, $2 million in 2006 and $3.5 million in 2009. Under the EGTRRA "sunset" provision the laws governing income, gift and estate taxes will be repealed beginning in 2010.

Furthermore, you can make tax-free gifts while you are still alive. You can give away a cumulative total of up to $1 million over your lifetime ($11,000 per person in 2002) to relatives and friends without owing any federal gift tax. This is the "gift-tax exclusion," and both you and your spouse are entitled to separate $1 million exclusion. The gift tax exclusion is currently scheduled to remain at $1 million through 2010 and beyond.

Share your Plans and Get Help. Be sure to discuss your estate plans with your heirs, executors and guardians to make your wishes known. By being clear about your intentions when you make your estate plan, you can help dispel potential conflicts after you are gone.

Finally, with all the new tax laws and so much to consider, it is more important than ever, to have a trusted and competent estate-planning attorney and financial advisor. Your lawyer and your financial advisor can help you create a will and other appropriate legal documents, offer advice, keep your estate plan current with the new laws and help administer the disposition of assets.

Marcus M. Moreno, CPA is a Financial Advisor with American Express Financial Advisors Inc. Telephone - (480) 833-1809. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer.