Monday, October 26, 2009

Getting Yourself in Order--Step 4: Creating Your Dispositive Document; A Will or Trust

In our series about getting yourself in order, we are at Step 4, creating a dispositive document. Read our prior columns for the previous steps in this important series.

What is a dispositive document? Well, it sounds fancy, but it's not. A dispositive document can be either a Will or Living Trust. In other words, a dispositive document is where you cover (among many important things) where you want your property to go and how to get it there in the event of death. For simplicity sake, we will use a Will to illustrate how important having a dispositive document is.

First, what if you don't have a Will? Well, we have covered this in prior articles below and encourage you to read those. If you don't have a Will and die, then your estate (whatever that may be) is handled according to the laws of intestacy (generally not what you want) and according to the beneficiary designations that you have created. Is this good? Usually NO! Read on and you will agree.

Another set of problems is created by computer forms, zoom forms and fill-in-the-blank forms. Basically, they don't work, or create unanticipated problems for your family. They are unreliable at best and a disaster at worst. Specific problems with these documents are covered in a prior article which appears below.

Here are the reasons you want a Will and why you don't want to rely on the laws of intestacy:

1. You get who you want to be your Personal Representative (PR) also known as your Executor. If you die without a valid Will, you get no choice and who is appointed may not be who you want!

2. You get to establish your plan for your property. If you don't have Will, you get the state's plan for your property and that could be the last thing you want.

3. You get your choices for guardians of minor children. Without a valid Will, the kids will live with the persons designated by the Court, not necessarily your choice.

4. You get to establish the plan you want for protecting your kids, or spouse, or other family members from unwise spending habits or predators who may target them for being suddenly with money.

With a Will you also get to address special circumstances that could be important to you such as:

1. 2nd or later marriages. Let's face it, fewer people are married to their first spouse and that requires some planning. Without a valid Will, it could lead to trouble.

2. Special needs kids. Special needs kids are fragile enough without our exposing them to financial disaster or predators. They require special consideration and planning which can only occur if you do a Will.

3. Blended families. Along with 2nd and later marriages comes blended families. We even get to watch them on TV with Eight is Enough and Jon & Kate + 8 and many other examples. Blended families require outside the box thinking to address the issues and the solutions can only occur in your dispositive document--Will.

4. Aging parents and others you are responsible for. It takes a village according to some, which means you may be responsible for family members other than your children. These circumstances require planning and special drafting in your Will because without that, those people will go lacking in your estate.

5. Operating or special assets and property. Whether you have a small business, farm, ranch or oil and gas assets, you may have property that needs special handling. How about if you are a fix and flip expert? That's a business that requires special drafting in your Will. Without that special attention, your business or assets could have problems.

6. Estate tax issues. If your estate is large enough (over $3.5 million for 2009, or just $1 million in 2011)then estate tax planning is advisable. Why? The minimum estate tax is 45% for 2009 and up to 55% in 2011. A future article will cover the impending estate tax asteroid scheduled to hit the earth January 1, 2010, so more on that later. Without a Will, your family gets no estate tax planning and you have another family member--Uncle Sam, who will take a huge piece of the pie away from your family.

You know what's amazing? I have covered only a few of the basic reasons for having a Will! There are many others too numerous to list here. But just these few should convince you about having your own dispositive document.

So that's Step 4 in getting yourself in order: get yourself a dispositive document, otherwise, it could be hazardous to your financial health.

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