Frequently Asked Questions
Q. Do I need a living will and a health care proxy?
A. A living will is a medical directive, stating your wishes should you become terminally ill and unable to make decisions regarding life-sustaining actions. With a health care proxy, you can assign someone you trust to enforce your medical directives. In addition, a health care proxy applies to all instances of medical incapacitation, not just terminal illnesses. While every state has its own rules, having both a living will and a health care proxy will save you, and particularly your family, a great deal of heartache later on.
Q. Should I assign a power of attorney?
A. When you are no longer able to control your financial decisions – and no one is immune from aging and loss of mental clarity – you want someone competent and trustworthy to help you. If you are incapacitated without assigning someone a power of attorney, the court may assign someone for you – someone you may not have wanted, and it may cost you more than you anticipated. There are different types of powers of attorney, and an attorney can help you decide which type suits your circumstances.
Q. May I give gifts to my beneficiaries without incurring a gift tax?
A. You won’t incur a gift tax for giving up to $14,000 per year in cash or assets to as many people as you like. Nor will you incur a gift tax if you pay for your beneficiaries’ medical or educational expenses – as long as you give the money directly to the institutions. The tax consequences can be quite complicated when you make large gifts, so be sure to consult your advisors regarding all your options.
Q. Will my estate have to pay federal estate taxes after I die?
A. Depends on the size of your estate and the year of your death. For example, if you die in 2013 and your taxable estate is worth less than $5.25 million, the federal government won’t impose an estate tax. If your estate is taxable, the tax rate is a whopping 40% in 2013, so be sure to speak to your advisors about charitable lead trusts or other options for reducing your tax burden.
Q. How often should I update my will?
A. You should think about your assets, your children, and your future plans annually – or sooner if you expect a major life change, such as a separation or divorce, a relocation, etc. Your feelings about assigning guardians for your children may change as your children age, or as your selected guardians age. You financial situation may change, or the value of your assets may change, particularly if you own a great deal of property. Life is certainly unpredictable, so it’s a good idea to update all your documents regularly.