A Will-ing Encounter

ESTATE PLAN? WHAT ESTATE PLAN? Donald G. spent 22 years building a solid waste business. Sure, he figured that some day his sons would take over the company. In the meantime, if something happened to him, they would take care of their mother.

He recalled setting up something in his will years ago when his children were small. He stuck the will into a drawer with a lot of other papers, including the deed to his house, and basically forgot about it. What really concerned him was his investment portfolio, which he monitored on a weekly basis.

A well-crafted estate plan by no means needs the frequent attention that one gives to stocks, bonds and mutual funds. But it does need a look-see every five years or so — if only to assure that it reflects changes in one's personal situation and tax laws.

Some of the biggest changes are already underway. The federal estate tax is scheduled to disappear in 2010. But it will be back on the books the following year. Although Congress is likely to comprehensively revise the estate tax by 2011, chance are it will still remain to some degree thereafter.

To fully take advantage of the estate tax exclusion — the amount that is not subject to federal estate taxes — many couples set up a trust for each spouse and fund the trusts with an amount equal to the exclusion.

If no trust exists, then when, say, a husband dies, all assets pass to his widow without any federal estate tax. However, when she dies, the heirs benefit from only one estate tax exclusion. If the husband's exclusion amount had been in a trust, the couple's heirs would have received the amount tax free.

The exclusion is now $1.5 million, and by 2009, it will reach $3.5 million. Some couples may not want to sock away such hefty sums in a trust, particularly if the widow might need some of the money during her lifetime. To deal with this situation, estate planners and tax lawyers sometimes insert a disclaimer into a will or trust agreement. The disclaimer allows a widow to inherit all the assets of her late husband but allows her to disclaim any amount up to the amount of the estate tax exclusion.

Besides distributions after death, creating a healthcare proxy is another key element of organizing one's affairs. These documents enable close friends or loved ones to make critical — particularly life and death — healthcare decisions when a person is unable to make such decisions for himself. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is very restrictive and says that doctors and hospitals cannot release a patient's medical records to anyone except a spouse.

However, in 2003, a set of federal rules was issued that allows a non-spouse who is a named agent for medical decisions to receive the records. However, for that to happen, a person's healthcare proxy must acknowledge what HIPAA says, but then direct the caregiver to provide medical documents to the non-spouse agent.

Finally, a person needs to make sure that his assets go to the right people. Changing a will may not be enough. Some interests, such as life insurance proceeds and individual retirement accounts (IRA), contain their own beneficiary designations, and what they say will preempt the terms of a will. To change the designations, contact the appropriate companies and fill out change-of-beneficiary forms.