Tax planning and estate planning are important–especially for women. Since 80% of married women will outlive their husbands, combined with the possibility of a spouse’s layoff, divorce, or remaining single, chances are high that all women will at some point in their lives become the head of household and sole breadwinner. So it’s important that women develop tax strategies and estate plans that are beneficial to them and their families.
In this final installment of our Women & Money series, black enterprise will answer the 10 most commonly asked questions by women about taxes and estate plans. The answers provide the information and resources needed to make informed decisions and help pass on wealth to future generations.
1. What happens if I die â€‹without a will?
Carol Frazer wants to leave something behind. “My will is the financial expression of my legacy,â€ says the 33-year-old senior partnership marketing manager who lives in New York. “What you have built can only continue and manifest itself–in the way that you would like–with a will. There’s no other way for it to carry on.â€
If you die intestate, or without a valid will, all your assets will be distributed according to the laws of the state in which you reside. But those laws may not reflect your final wishes, says Lori Anne Douglass, partner, primary practice area: trusts and estates at the New York-based law firm Moses & Singer L.L.P. A will is also the only legal document that allows parents with minor children to designate a legal guardian. If you die without a will, then the state where you lived will distribute your assets in accordance with intestate succession. In New York state, for example, the entire estate would be left to the surviving spouse if the deceased had no children. If the deceased had children, then the surviving spouse is entitled to the first $50,000 plus half of the remaining estate; the other half would go to the children. And if there is neither a surviving spouse nor children, the estate passes to the deceased’s parents. That distribution often reflects the state’s best guess as to how you might want your assets to be distributed, according to the American Bar Association.
Because Frazer is divorced and has no children, her parents would automatically inherit any remaining assets. Working with an attorney who specializes in estate planning, she instead chose to leave a sizable share of her assets to her 6-year-old nieces, Reagan and Mariangel, as well as her father, Arturo, and siblings Arturo Jr. and Liza. She is also leaving money to Hogar de Amor, a Honduran orphanage, and her alma mater, Louisiana State University.
A lot of wealth has been lost because people don’t know how to properly transfer it, says Douglass, adding that only a third of African Americans have a will, compared with 50% of Caucasians.
“Everyone should have a will, whether they have $10 or $10 million,â€ says Wynne Whitman, estate planning attorney and partner with Schenck, Price, Smith & King L.L.P., and author of Smart Women Protect Their Assets (FT Press; $16.99). She goes on to say that people of all ages should have a will and recommends drafting one as early as 18 years of age. “There are horrible things that happen to people every day. No one wants to think about it, but it’s the responsible thing to do,â€ says Whitman.
Getting organized is the key to getting over any fears or confusion about estate planning. The first step is to make a list of everything you own. Whitman insists there’s nothing too small to list if it has monetary or even sentimental value. When planning your estate, be sure to think carefully about taxes and assets, and about those who will act on your behalf. Details matter. Designate whether or not each beneficiary will pay his or her own taxes, otherwise the state may decide how the taxes are paid.
2. Is it OK if I draft my own will?
The short answer is: probably not. “Every person I know who’s tried to draft their own will or power of attorney failed miserably,â€ says estate planning attorney Julie Garber. “I don’t recommend it.â€ This is because each state has different laws regarding wills. For example, Garber once had a client who lived in Baton Rouge, Louisiana, and owned property in the Florida Keys. He drafted a handwritten will called a holographic will–and had it witnessed outside of Baton Rouge; however, it was invalid in Florida. He was able to leave assets to his girlfriend, who lived in Louisiana, but she wasn’t entitled to his Florida property–that went to his daughter.
Even using a book or software has pitfalls, because many use a one-size-fits-all approach. And states have yet to standardize laws regarding estate planning. There’s a uniform code, but not all states have adopted it, though some have adopted parts of it.
Douglass agrees that creating a will shouldn’t be a do-it-yourself project since each state has its own rules. Plus, there’s a lot to consider: taxes, trusts, and beneficiary designations. Still, many people are afraid to plan for death.