Estate Planning

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Estate Planning is the topic of countless books and the specialty of lawyers who have made a career out of helping clients navigate some very confusing territory. Today, I’d like to offer you my 101 version to give you a start in this process and help you know what questions you should ask if you see an estate planning attorney.

To simplify this topic a bit, I’ll break this topic down to three sub-categories; wills, designated beneficiaries, and trusts.


A will is a relatively inexpensive (sub $500) first step in the proper handling of your affairs after your death. In it, you make known your desire for guardianship of your children, as well as who you want to get your possessions after you die. In your will you also need to name the executor of the will. Ideally, this is someone whom you trust and has the ability to serve in this position. Upon your passing, the executor needs to settle the finances of the estate including the payment of any debts and taxes, collection of any money owed to the estate. And finally, disburse the assets according to the terms of the will.

Often the same attorney who prepares your will also will offer you what is called a “living will,” the document that spells out your wishes regarding life prolonging medical treatment. Don’t pass on this important document; it will save your family from a very tough decision.

Designated Beneficiaries

A little discussed aspect of estate planning, the designated beneficiary may be the main conduit for much of your estate to pass. This refers to how accounts themselves can have a beneficiary which takes priority over any wishes expressed in your will. Retirement accounts including 401(k), IRA, and others are in this category. It’s important to consider this for a number of reasons. As time passes, you might have updated your will. That’s great, but did you update your 401(k) at work, or does it currently list the spouse you had 25 years ago? The people listed as beneficiaries on the account are who will inherit your money, not the people listed on your will. Not all 401(k) administrators will allow a non-spouse to take withdrawals over their lifetime, some offer a maximum 5 year payout.  This is one of the factors you should consider when leaving money in the 401(k) of a former employer or transfer it to an IRA. The bottom line – make it a habit to check your beneficiaries on your retirement accounts or any accounts with “pay on death provisions.” This will save those who survive you from wondering why a former spouse or friend you haven’t spoken to in decades was the recipient of your account.


With the exact details of the estate tax in a bit of flux right now, no one can be certain what the exemption will be or whether or not there will even be an estate tax next year. Still, there are a number of uses of a trust that are somewhat independent of such changes in the laws. First, the Special Needs Trust (Also called a Supplemental Needs Trust) allows you to set aside money for a beneficiary who has a disability. If they received the funds outright, they might be disqualified from receiving government assistance. This is a way to leave them additional funds without impacting their benefits. Another common use for a trust is a Spendthrift Trust. You may feel that one or more of your beneficiaries isn’t ready to handle a windfall. This trust will allow you to leave the money in a way that will restrict withdrawals, typically to 5% of assets in the trust. Wording can be included to provide for unusual expenses such as medical bills or home repairs at the discretion of the assigned trustee. In April ’08 I wrote a post titled “On my death, please, take a breath” in which I describe a situation where such a trust could have helped avoid a large tax bill.

This article is an introduction only. The issues surrounding estate planning are often very sensitive. Wherever family and money are concerned one often needs to tread lightly. If you have a specific situation you’d like to discuss, ask in the comments as people are happy to help, but keep in mind, ultimately you need to work with a professional to be sure your will and trust is properly executed.

9 responses to “Estate Planning”

  1. Thanks for helping me understand that the lawyer that does the will can also be used to help you with the estate planning process. I will share this information with my best friend so that she will know who to hire for her dad. They just need their services since their dad has been diagnosed with a terminal illness this year. It appears that he might only have a couple of years to live at his age.

    • Hi LCP,
      If you are referring to the K-1 you receive from a Special Needs Trust, you can use Deluxe. If you need to prepare a tax return for a Special Needs Trust that you are a partner or owner of you need to file using the Business version.

      Thank you,
      Lisa Greene-Lewis

  2. Can Turbotax handle special needs trusts? I have a 3rd party SNT set up this year and have been using TT for years. I want to see if I can still use TT as I will file multiple returns as a way of validating the trust.

    Thanks in advance

  3. rmyr – As a financial blogger, I am sensitive to having my affairs in order, not leaving ‘a mess’ for my heirs.

    “Knowing what they want” doesn’t mean things go that way. When you hear people talk that way, you might want to point out how big a mistake they’re making.

    In my own trust, my sister is a beneficiary if (God forbid) my wife and daughter perish with me. For her to collect, she needs to show my trustee an executed will. I don’t tell her what to do, i.e. she can choose whatever people or charity she wishes, but she needs to do the right thing and make the decision so the state doesn’t make it for her.

  4. I hope you will continue to post on this subject. I think there are a lot of people out there who need to understand how this works. I have met a lot of people, mostly over 60, who refuse to write wills. They say, “My wife/husband/kids know what I want. They’ll do the right thing.” I want to shake them. Too many times (and even in my own family) people do NOT do the right thing. Having a will/trust is essential. Thanks for talking about this.

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