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Finally got the wills started!

September 12th, 2009 at 02:35 pm

When I started my blog 2.5 years ago, one of the first goals I listed was to get our wills updated. Talk about procrastination! We finally met with a lawyer yesterday, and should have everything signed in a month. I had set up a will and trust before we married, and DH had never set anything up. At one point I bought Quicken Will & Trust and we went through the whole program, but didn't actually sign anything. I later saw some details about A&B trusts either here or somewhere else online that made me realize that it was likely I was making some mistakes that would have big tax consequences.

The lawyer was recommended by a friend, and charged $2,000 to do both wills, a living trust, power of attorney, and healthcare directive.

I learned a few interesting things from meeting with the lawyer. The current tax law that doesn't tax estates under $3.5M is due to expire after 2010, and is likely to go back to taxing estates over $1M. Since our net worth is right at $1M I hadn't worried about it. It turns out that any insurance payouts are included in your estate, and the full value of your home is taxed, not just the balance after the mortgage is paid. This brings our estate up to $2.6M!

If we hadn't done anything and both DH and I were killed in a car crash, roughly $600k of our estate would go to taxes! With the trust he is setting up, that will go down to about $200k. It's funny, I don't get too upset at the idea that when my parents pass away the government will take some of my inheritance, but when looking at my assets, it feels like they're planning to take food out of my minor chilren's mouths!

There's another quirk about life insurance that I need to look into further. Apparently if you have individual term life insurance there is a way to shelter it within the "B" part of a trust so it won't be taxed. Group life insurance that you get through your employer can't be sheltered this way. DH gets $400k from his employer, and then we each have $500k of "group term life" from IEEE (a professional organization for engineers.) The rates we're getting for the IEEE insurance are really cheap, something like $150 every six months for $1M in coverage. But I think it may be the same type as what an employer offers. It may make sense to pay more for individual term insurance that can then be sheltered and reduce the tax burden of the estate.

3 Responses to “Finally got the wills started!”

  1. NJDebbie Says:

    Thanks for reminding me the importance of having a will. Good luck setting up your estate!

  2. monkeymama Says:

    Actually, I have not heard in the tax arena that it will likely revert to $1 mil. I just posted to your thread though. I would probably wait and see what happens before I worried too much about it. (At this point, it's all speculation. Congress is not interested in letting people plan a year ahead for taxes - everything has to be so last minute).

    I clearly am not an estate expert, but the mortgage thing does not sound right (I have seen my fair share of estate tax returns). I would wonder if the value of your assets goes to the "$3.5 million" determination. MEaning, you may have to file an estate tax return if you have more than $3.5 million in assets. But no, there would be no estate tax on a home to the extent that it was mortgaged. That I know, 1000%. Out of curiosity, I will look into that a bit.

    Anyway, what a great step to get that taken care of! Something about having a second child is motivating I guess. When we did ours. I am appalled at the large mistakes we made in our quicken wills (unintended consequences as pointed out by our lawyer). A will is not something to go cheap on.

  3. monkeymama Says:

    Yes - the mortgage thing is precisely as I guessed. (I glanced at the instructions and estate tax form). You'd have to file an estate tax return is assets were more than $3.5M, but the taxable portion would be reduced by any outstanding mortgage. So there would be accounting fees and such, but no "expensive" estate tax.

    I am sure the lawyer would also mention because mortgages do get paid, etc.

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