Estate planning for family security.

Estate planning is an essential part of your financial plan. It allows you to provide financial security for your family after your death. You can decide how your property is to be divided among your heirs and who the legal guardians of your children should be, not the state.

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Dying Without A Will

If you die intestate without a will, your state has special laws called the "laws of intestacy" that control how your property (real estate, checking, savings account, stocks and bonds, and personal assets) are divided up. If you have young children, the state will also determine who their guardians will be.

The size of your taxable estate is based on the current market value of the property held in your name, your share of property you own jointly with someone else, the death benefit of your life insurance policy and assets you have in a revocable living trust. If the combination of these assets exceeds $600,000, your heirs will have to pay federal estate taxes. When you combine your house, life insurance, retirement plan at work, car and other personal belongings it isn't hard to reach $600,000.

The first dollar over $600,000 is taxed at 37%, anything over $3 million is taxed at 55%. Depending upon the size of your estate, the government can take a huge chunk of your assets from your heirs, which is why it is necessary for you to have an estate plan. With proper planning you can reduce or eliminate taxes leaving more money to your family.

The first step in putting together your estate plan is to make an inventory of the assets that form your estate and determine their value. (See worksheet, "Estimating The Size Of Your Estate.") List everything you own, including such items as real estate, stocks and bonds, equity in a business, jewelry, furniture, cars, and your checking and savings account. Also list money you may have in an IRA, company pension and profit sharing plan, and the value of all life insurance policies.

Your first priority is to make sure that your survivors will have enough money to cover their basic needs. An emergency cash reserve fund can take care of the living expenses for a few months in case your life insurance death benefits are delayed. You need to carry enough life insurance to cover your family's living expenses, estate taxes, and the cost of probate. Probate (to be discussed later) can take six months to two years and cost 10% of your estate.