Financial Planning: Wills And Other Ways

The same kinds of problems can occur with living trusts, says attorney Robert Fleming, author of "The Elder Law Answer Book" ? especially those bought hastily, through insurance agents at "senior seminars." Property put in trust avoids probate, if that's a problem in your state. But all too often, seniors vary the beneficiaries of their trusts?accidentally leaving property to their children in unequal amounts. The attorney who does your will or trust should look at all your beneficiary forms to be sure they coordinate.

The modern family mix. Put multiple marriages, children and stepchildren into the brew and steam can rise. That's especially true when you marry at a later age, when grown children feel entitled to inherit from their natural mom or dad.

Depending on where you live, your spouse may be legally entitled to one third or one half of your estate (excluding your IRA and, in some states, your living trust). Official domestic partners and people in civil unions are entitled, too, says Mary Randolph, author of "The Executor's Guide." Often, couples sign prenuptial agreements, waiving this right, so that each can leave property to the children of their previous marriages.

To be sure that the kids do indeed inherit, don't go on promises alone, says Sherman Doll of Capital Performance Advisors in Walnut Creek, Calif. Doll knew a man who left his money outright to his second wife, with the understanding that she would pass the remaining assets to his children when she died. But her will leaves everything to the children of her own previous marriage and?guess what?her kids think she shouldn't change a thing. Planner Tom Bentley of Truepoint Capital in Cincinnati advises that expert lawyers compare your prenup with your estate plan, so they'll fit.

There's one huge problem that a prenup doesn't solve. The moment you say "I do," your 401(k) automatically goes to your spouse. If that's your chief asset and you want it for your kids, your new spouse should sign the plan's waiver of spousal rights while you're walking back down the aisle.

Couples starting divorce proceedings should instantly remove their soon-to-be exes as beneficiaries from all possible assets, says Truepoint's president Michael Chasnoff. If the final settlement sends some of that property back to your ex, you can easily change the forms again. What if you divorce and then die, with your ex still named as heir? The laws in most states automatically remove exes from wills if you don't get around to doing it yourself. Exes also may be excluded from insurance policies, IRAs or joint tenancy, says law professor Robert Danforth of Washington & Lee University. In other states, however, the ex will indeed inherit?like it or not. One exception: if you remarry, your new spouse can get the 401(k), even if the ex is listed as beneficiary.