Image courtesy of adamr/FreeDigitalPhotos.net
Image courtesy of adamr/FreeDigitalPhotos.net
Image courtesy of stockimages/FreeDigitalPhotos.net
Part of estate planning invariably involves making plans for a funeral. Many estate plans involve the notion of a pre-paid funeral, but unless the specifics are laid out with the assistance of a qualified estate-planning attorney, a pre-paid funeral could end up being a “grave error,” at least according to AARP Magazine. In some cases, such as that of Mississippi resident Evie McComb, a person will purchase a pre-paid funeral, file away the paperwork without alerting his or her family to the decision, and after his or her death, the paperwork will not surface. As was the case with McComb, the surviving family ended up paying for what had already been paid. “Evie’s daughter, Johnnye Denman, presented the document to the funeral home and asked for a refund,” according to AARP Magazine. “Too late, they said.”
According to the National Funeral Directors Association and as reported in AARP, “the average price of a burial with vault is about $8,000.” That is a lot of money for your family to come up with upon your death, but it is a directive that can be included with other important money plans. According to a publication from Ohio State University, the costs of dying include a funeral, a gravestone and cemetery plot (or cremation costs), and any medical expenses that might be incurred if the person dies in a hospital. Your specific wishes for your funeral and where the money will come from to pay for it can be explicitly laid out in your estate plan, making a frustrating and sad scenario like McComb’s impossible.
One way to set up funeral plans in an estate plan, as the executive director of the Funeral Consumers Alliance Josh Slocum told AARP Magazine, is to set up a “payable upon death” bank account. “It will earn interest, be available for an emergency, and still provide financial support to your family when you pass away,” according to AARP. However, payable on death accounts may create unintended consequences....
Estate planning is not just about deciding where your money will go. When planning for your family after your death, your assets are not the only things about which you will need to decide. Especially if your children are young, you will need to take into consideration what will happen for them upon your death. It may seem morbid to think about, but planning ahead is far less morbid than not having a plan—which leaves your family to make decisions without you. Naming a legal guardian in the event of your death, if your children are minors, is an important part of estate planning.
According to IllinoisLegalAid.org, a “guardian is a person who has been appointed by the court to handle the personal or financial affairs of another person.” Many parents opt to appoint a trusted relative or friend as the guardian of their children. It is important that the person who you prefer to have as your child’s guardian is trustworthy and close to the child—this person will be handling all the financial, as well as day-to-day, decisions in your child’s life if you are unable to do so. If your child is developmentally disabled and relies solely on you, even if your child is over 18 you will need to consider naming a legal guardian. According to IllinoisLegalAid.org, “many important decisions may need to be made concerning matters such as health care, living arrangements, and habilitation.”
According to CNN Money Magazine, “if you die without a will—a status known as intestate—you leave it up to the court to decide who will take care of your child.” First-time, young parents often name their own parents as guardians of their children, which can be a good decision at an early age, but given the fact that grandparents usually die before their children this may need to be amended at some point thereafter....
The act of passing on the family home is no longer as simple as just handing over the deed to your children. According to Smart Money magazine, “there are nearly a dozen ways to give a home to your child. And a couple are tax-free.” Yet to make this kind of exchange or transfer possible, it cannot be done last minute, and definitely needs to happen before you are no longer able to handle your affairs. “In order for the transaction to work properly,” according to Smart Money, “you’ve got to plan ahead.” The most important first step of planning is to hire an estate planning attorney to begin the complicated process.
According to CNN Money Magazine, the federal estate tax exemption, the amount you may leave to heirs free of federal tax, is permanently set at $5 million, indexed for inflation. In 2013, “estates under $5.25 million are exempt from the tax. Amounts above that are taxed up to a top rate of 40 percent.” Rather than gifting the home to your children while you are still living there, states Smart Money, it is much better to stay in your home until you die, providing that your home is below the estate-tax exemption ($5.25 million). “Even if you pay a market-rate rent to your child, the IRS might argue the home's full date-of-death value still belongs in your taxable estate.” This could leave your children with a higher tax burden than you intended.
Other options are to give the house as a gift to your children, but, according to Smart Money, “you will probably have to dip into your $5.25 million gift-tax exemption.” You can do this by using your annual $14,000 gift-tax exclusion—bear in mind that it is $14,000 per person, so if both you and your spouse gift the house to your child and his spouse, “you can offset $56,000 of the home’s value.”...