Business & Finance :: February/March 2007
Most Women Manage Money at Some Point - Start Now
In many cases, the responsibility of managing the estate falls to a widow — just as she is grieving, disoriented and least prepared to learn how to manage money. That’s why it’s important to get comfortable with finances and investing before a crisis strikes — and the best time to start is now.
A few basic steps can significantly simplify the process. The first is to recruit a team of professionals to help you — an attorney, a financial advisor and an accountant. Such advisors can help determine how much planning you need and whether a will is enough, or whether your assets warrant a trust or a full estate plan.
More than 70 percent of Americans who die each year are without a written will, according to Nolo Press, which publishes legal information books for laymen. In those cases, the person’s state of residence decides how to divide the person’s assets based on a standard formula — a formula that may be very different from what you would choose for yourself. “At the very minimum, everyone should have a will,” said Lisa Comber Hall, an attorney and partner in Supplee & Hall in West Chester, Pennsylvania and a specialist in tax law. “But if you have more than $700,000 in assets, you need to make sure that you have something more sophisticated than just a simple will. That may sound like a very high number, but with so many people these days having stocks and mutual funds in their retirement plans, many people are at that level.”
When a U.S. citizen dies, everything can be passed to the surviving spouse tax-free. (The rules are different for non-citizens, so consult a tax adviser.) If there is no surviving spouse, up to $2 million can be passed to other heirs tax-free in 2006. The federal tax on amounts above $2 million can rise as high as 46 percent. State tax takes an additional bite.
The biggest problem comes when the surviving spouse dies. If each spouse’s estate is worth $750,000 at the time the first spouse dies, the surviving spouse likely will leave an estate topping $1 million — and that means taxes for the heirs.
A way to avoid that is with a bypass trust. If the first spouse to die has put his or her estate in a by-pass trust, the surviving spouse has access to the money as long as he or she lives. But when the second spouse dies, the assets in the bypass trust pass tax-free to a second beneficiary — a child or grandchild, for example. Even if the assets in the trust have grown to more than the tax-free limit since the death of the first spouse, the money passes on tax-free.
Other important tools include generation-skipping trusts, which pass assets to grandchildren, and charitable remainder trusts, in which the assets revert to a charity once the income beneficiary passes away and no longer needs them.
The first step is to determine where all of the assets are located. It’s not unusual for someone to have accounts at six to eight banks, brokerages and insurance companies. Also put together a list of key account numbers and contact phone numbers, and keep it in a place both spouses know about. This list should include all policy or account numbers for life insurance, long-term-care insurance, mortgages, bank accounts, investments and loans, as well as contact numbers for your personal representatives or for each company’s customer service department. Listing approximate balances also can be helpful.
Ideally, the file where this list is kept also should include copies of policies, recent statements, and copies of the forms used to name beneficiaries. Preparing such material in advance is vastly easier than doing it after a spouse dies. It can also make the surviving spouse less vulnerable to con artists who use the obituaries to find easy marks. If you’ve already established relationships with a financial advisor and an attorney before a death occurs, you’ve had time to find someone with whom you are comfortable. And you can tell anyone who calls that you already have an advisor.
Those who haven’t retained advisors in advance are urged to ask friends and family for referrals rather than hiring a stranger over the phone. Your bank also can be a good source of referrals and contacts.
Once survivors get through the initial grief of losing a spouse, finances become a major concern. Usually the surviving spouse’s main fear is whether they can continue to live as they’re used to living. “So we look at their income,” says Hall. “We look at whether they need someone to help them with their finances - a financial advisor or a corporate fiduciary. We suggest that we meet with that person and with their accountant so that we’re all working as a team. And then we want to see the documents.” With documents, she looks primarily at how assets are titled and whether the surviving spouse has named someone as a backup for their power of attorney and executor. “Most spouses name each other,” she said. “When one spouse dies, that leaves the survivor vulnerable unless there’s a backup.”
Power of attorney gives the person named the power to make any legal decisions you could make — from the sale of assets to decisions about medical care — if you become incapacitated. For that reason, Hall recommends leaving the paperwork in the care of a trusted third party, such as an attorney, after it’s signed. “If someone comes in and says they need the power of attorney because you want to sell everything you own, we can call and make sure that’s what you actually want before releasing the paperwork,” she said.
“I think what surprises people the most is how relieved they feel once their estate plans are in place,” Hall said. “Every day I hear people say how glad they are, how much better they feel and how they wish they had taken care of it a long time ago.”
Trust services are offered through Wachovia Bank, National Association, a national banking association (chartered by the Office of the Comptroller of the Currency) and a wholly-owned subsidiary of Wachovia Corporation. Wachovia Securities is not a legal or tax advisor. However, we as Financial Advisors will be glad to work with you, your accountant, tax advisor and/or attorney to help you meet your financial goals.
Call BIG Investment Services at 302-734-7526 (PLAN) or toll free 866-946-7526 (PLAN) to schedule your complimentary initial consultation with Mr. Boothe.
The accuracy and completeness of this article are not guaranteed.
Provided by courtesy of David F. Boothe, President of BIG Investment Services in Dover, DE. For more information, please call Mr. Boothe at 302-734-7526. Investment products and services are offered through Wachovia Securities Financial Network, LLC (WSFN), member NASD and SIPC, a registered broker-dealer and separate non-bank affiliate of Wachovia Corporation. BIG Investment Services is a separate entity from WSFN. ©2006 Wachovia Securities Financial Network, LLC.
