Make Your Wish List
Before you can create your plan, you need to know what you're working with. Buy a three-ring binder or notebook, a set of divider tabs, a package of three-hole-punch paper, a pencil, a pencil sharpener, and an eraser. These are the supplies you will need to create your plan. A three-ring binder or notebook is important because you will likely add or remove sheets of paper quite often. Your plan will be divided into categories and organized in a way that will help you make the best decisions.
Who You Wish to Include in Your Plan
The first tab of your notebook will be used to define who will be part of your plan. On one sheet of paper, list everyone you want included — your spouse or partner, children, grandchildren, parents, siblings, friends, and perhaps a charity or your community. Then, make a separate sheet of paper for each person or entity to whom you plan to leave property. Write down all of the basic information about each person on the separate pieces of paper, including the person's full legal name, relationship to you, birth date, Social Security number, address, telephone number, and e-mail address.
Who you include in your plan may change as you continue through the planning process. Circumstances also may change for your loved ones. You may find yourself using that eraser to eliminate a name from the master list, or adding a sheet of paper for someone you forgot.
Making decisions about your property is like playing a game. Each piece of paper that describes your property can be moved around as if the property were on a game board. The important part of the game is to match your property to the right person at your death.
The reason you want to use a separate piece of paper for each person or entity is because you are going to create a miniplan for each, allowing you to make notes or record any special needs. You will also have to decide what happens to that person's share if she dies before you do. Should her share go to her children, your siblings, or another person? Create a flow chart for each person's share.
What Are Your Assets?
The next tabs in your notebook should be used to summarize and describe your property. Make a separate tab for each category of property you own, such as:
Real estate
Stocks
Bonds
Mutual funds
Life insurance
Retirement accounts and annuities
Bank accounts
Business ownership or share
Each piece of property gets its own sheet of paper. List the value of the property, the amount of debt against the property, what you paid for the property, and the cost of any improvements you have made. This core information is important to help you make decisions about the property. You don't need to have your property appraised. A fair estimate of the value of the property is typically sufficient to begin your plan.
Once you have all the information down, you will learn to analyze it in various ways. This will not only help you decide how you are going to distribute your property, but it will also help you make critical decisions about the income tax results and the estate and gift tax consequences of your choices.
Where, When, and Why
Now you can think about where, when, and why. The decisions you make about one or more pieces of your property may change when you start thinking about the needs of your loved ones, the practical ramifications of what your loved ones would do with your property, and the tax consequences associated with your choices.
For fun, keep track of the number of hours you spend getting organized and making basic family decisions. Then figure out how much it would have cost if you had paid a lawyer to gather the information about your family and your assets. Multiply the number of hours by $250 to $300 per hour and be pleased about the money you saved!
For example, assume you own a vacation cottage. You recorded the value of the cottage, what you paid for it, and the cost of any improvements made, and you placed this information in your notebook. Now, on the same piece of paper, list the annual operating costs, such as utilities, taxes, and normal upkeep of the cottage.
When you start asking yourself who should receive your cottage and why, your initial decision about the cottage might change. Let's say you started the planning process thinking you would divide all of your property equally among your children. But when you focus on the information you have about the cottage, you realize how difficult it would be for your children to own the property together. You should think about who is going to pay the bills, who will maintain the cottage, and whether one child will use the cottage more than another. Your children may fight over whether or not the cottage should be sold. Maybe your children are too young to maintain the cottage. Perhaps one child is better equipped to own the cottage. You are now beginning to analyze not only who and what, but where, when, and why as well.
When you take all of the sheets of paper representing the property you own and lay them out on the table, it may make more sense to leave your personal residence to one child, your cottage to another, and to divide the investments among the remaining children. Your children's needs and what they are capable of managing often differs quite a bit among them. It could be a mistake to leave equal percentages to all your children.
The biggest misconception about wills is that most people think that if you have a will, there will be no probate. This is not true. In order to avoid probate, you need to have documents in place other than a will, such as a trust or jointly owned property.
The process of organizing your property piece by piece helps to crystallize the decisions you make for your family. As you think through your choices, you may find yourself changing your mind about who should receive each piece of property or when the property should be distributed. Remember, those pieces of paper can come in and out of the three-ring binder. Also, as you learn the rules about what legal arrangements you can use, you may change your mind about who, what, where, when, and why.
