If you pass away in 2007 and your net worth, including life insurance, is less than $2 million, your estate will owe no federal estate taxes. That exemption rises to $3.5 million in 2009, is eliminated in 2010 and returns in 2011 with an exclusion of $1 million, unless Congress takes action, which most financial planners assume it will. 

That's great news for most of us, but that nice exemption unwittingly often leads to a big problem. Because it is so generous, most of us who don't have substantial estates often believe there is no need for a will, or even a trust, to protect our heirs.  

And if that's what you think, you are wrong! It is imperative that you have a will--and possibly a trust--so that your assets are inherited by the heirs you designate, not the folks the state will appoint! 

A will is simply a legal document whose primary purpose is to stipulate what happens to your property after your death. It may also name guardians, create trusts and designate a trustee, as well as a personal representative. 

If you die intestate--without a will--state laws for the distribution of your estate are generally very rigid and don't make accommodations for your heirs who may have unusual needs. Instead, after your estate's debts are paid, your property usually will go to your surviving spouse, children and/or relatives, as the state deems fit. 

We tend to put off writing a will, because we think we have plenty of time. Sometimes, though, we don't. According to the Census Bureau, 22.6% of widows in 2004 were less than 65 years of age, with an average age of just 56 years old. Time, it appears, really is of the essence. 

Before you write your will, there are a couple of things you need to consider. First, destroy any previous wills.  

Next, you will need to choose your personal representative--the designee who will be charged with carrying out your wishes upon your death. It is critical that you take extra care in choosing this person. The most common personal reps are family members. But if you think that will cause more problems than it's worth, an estate attorney or banker (preferably someone younger than you) may fit the bill.  

Some states require a fellow resident to hold this position. Whomever you choose, make sure you get their permission before naming them. 

If you have minor children, you should appoint a guardian for them and may even want to consider appointing two--a financial, as well as a physical guardian. 

Your will should designate the division and distribution of all of your assets not jointly held, with already-named beneficiaries or that part of a trust. Here, you will want to indicate a percentage of the asset, not a dollar amount, to prevent the need to constantly revise the numbers.  

Ensure that your assets are titled as you wish. If they are jointly-held, those accounts will be passed outside of your will to the joint tenant or other named beneficiary. 

Assets such as retirement plans and insurance policies will already have named beneficiaries. Make sure those are still designated as per your wishes. And it would be a good idea to select both primary and secondary beneficiaries for each account. 

Here are common requirements for wills, in most states:

• They must be written, dated and signed.
• The testator--the person making the will--must be at least 18 years old, legally competent and acting voluntarily.
• The will must be witnessed by at least two legally competent individuals who should not be beneficiaries under the will.

Once you do write your will, it's imperative that you continue to review and update it as your personal circumstances change, including a birth, adoption, marriage, divorce, or a death. Additional changes may be necessary due to purchases or sales of property, tax law changes, a move to a different state, or if your designated representative, guardian or trustee can no longer serve. 

Fortunately, you may change or revoke your will any time before your death. Changes are easily made using a document called a codicil or by redrafting the will. 

Now, once you have created this all-important document, you need to keep it safe. Here's how: 

• Keep the original in a safe place, such as a safe deposit vault at your bank.
• Give your personal rep and your attorney a copy of your will with details as to where the original is located. With that copy, provide a letter of instruction that includes your bank and brokerage account numbers, insurance policies, credit card information, additional assets owned and other financial details.

If your financial situation is complex or you have substantial assets, you may want to consider using an estate-planning lawyer for professional advice. 

Your will allows your estate to proceed through probate, dictated by your wishes. No will, and it can be a free-for-all after your death! Consequently, it makes sense to spend a little time and thought in its preparation. If you have any questions, the inconsequential fee for professional advice will be well worth it.  

One last thought: A will does not allow you to skip probate, the court-supervised process of paying your debts and distributing your assets to your heirs. Probate can drag on for months and according to NOLO, can consume about 5% of your property in lawyer and court fees.  

If you want to avoid that process, you may consider establishing a trust. Stay tuned for more in the next issue of Financially Fit.

Happy Investing!

This concludes this week's issue of Financially Fit.  We encourage you to visit our website to review past issues of Financially Fit:

http://www.brokeradviser.com/newsletter.cfm

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