Inside Money: Five tips for preparing a will

While families prepare for gift-giving this holiday season, consider a present that keeps on giving: Prepare your own estate planning documents, or set your older relatives up with an estate planning attorney who can help ensure their affairs are in order. This is especially important if you live in New Jersey and your assets, including your home, exceed $675,000. That’s when the state’s estate tax kicks in. Fewer people — those who have more than $5 million — will be subject to federal estate taxes.

An estate plan allows you to direct how your assets will pass upon your death and who will implement your plan. It also will help you save on estate taxes. “Most importantly, it provides for an easier transition upon your death because your intent and direction are set forth in the documents you put in place,” says Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Your estate plan should start with a will, a document that dictates who should inherit your assets, names a guardian for your minor children and an executor to manage your estate. You can specify funeral arrangements, too. If you don’t have this document, you’ll leave lots to chance. “Without a will, your assets will be transferred under the laws of intestacy, which may differ from the way you want to dispose of your assets after death and a court will appoint an estate administrator and guardian, who may be different than the people you would have chosen,” says Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

A power of attorney is a document in which you appoint a person you trust to take over your financial and legal transactions if you cannot do so yourself. If you become incapacitated and you didn’t sign this document, your family may have to initiate an expensive and time-consuming procedure to have someone appointed your guardian, Whitenack says. The person you name would pay your bills, manage your investments and make all other needed money moves should you be unable to do so.

You also need to name someone to make health care decisions on your behalf. This person, along with your wishes for care, would be detailed in a health care proxy. If you become incapacitated without one, your family may have to apply for guardianship or conservatorship in order to make medical decisions on your behalf, Whitenack says. Then there’s a living will or advance directive, a document in which you state the types of treatment you want and/or don’t want to receive during the end stages of life. “By providing doctors and your health care agent with some direction, you will have greater control of decisions that may need to be made when you are unable to participate in such decisions,” Romania says. By memorializing your wishes, you can prevent disputes between medical institutions and your family, or among family members, regarding health care options, she adds.

Trusts can save an estate — and your heirs — lots of money in terms of tax planning. For example, a New Jersey state estate tax is imposed on estates in excess of $675,000, unless it passes to a charity or spouse. If each person in a marriage owns $1 million in assets and the husband dies, leaving everything to his wife, there will be no New Jersey estate tax. But when the wife dies, assuming she owns the entire $2 million, her estate will pay a New Jersey estate tax of approximately $99,600. “If the husband had utilized his exemption by leaving $675,000 in a properly drafted trust for his wife’s benefit, there would still be no New Jersey estate tax upon his death due to the combination of the exemption and marital deduction,” Romania says. “But upon the wife’s death, she would only be taxed on $1.325 million with a resulting New Jersey estate tax of $53,200, a tax savings of $46,400.”

After you draft these documents, it’s essential that you share them with your loved ones so they know what to expect. Make sure a trusted family member or friend has copies of these documents, as well as contact information for your attorney.