Tony Soprano, the famous lead character on HBO’s mafia drama The Sopranos, didn’t worry much about the IRS. Apparently James Gandolfini, the actor who brilliantly portrayed the thug on the long-running drama, didn’t either.
Gandolfini died of a heart attack on June 19 in Rome. Last week, the details of his will became public, and estate planning experts quickly pointed out that its structure could cost his heirs millions in taxes that could have been avoided with proper planning.
It appears that Gandolfini was among the 120 million Americans who don’t have an up-to-date estate plan to protect themselves and their family in case of sickness, accident or death.
“It’s one of those things that people just don’t want to do,” says William Hughes, an associate in the estates and trusts practice at Foley & Lardner, based in Milwaukee. “It’s not necessarily a pleasant discussion, and everyone thinks that they have time to deal with it, so they just keep delaying it.”
If you’re one of those people who has been putting off getting your estate plan in order, here are seven critical things you need to know about estate planning:
1. IT’S NOT JUST FOR THE RICH AND FAMOUS
Even if you don’t have Gandolfini’s fortune to worry about, it’s important to have an estate plan to make sure your assets are distributed according to your wishes, and to avoid squabbling among your heirs. “If you pass away without a will, you’re leaving a very significant headache for family members to deal with,” says Karen McIntyre, director and senior financial advisor with Wescott Financial Advisory Group in Philadelphia. If you have small children, a blended family or own a small business, having a will is even more important.
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2. YOU MAY NEED A TRUST
Though most folks fall below the current federal estate tax threshold ($10.5 million for a couple; $5.25 million for a single person) in some states the bar can be as low as $1 million. Transferring cash into an irrevocable trust before your death can help your heirs (spouses are usually exempt) avoid having to pay those taxes.
Families with young children may want to use a trust to ensure their offspring don’t receive a windfall before they’re mature enough to decide what to do with it. Estate attorney Curtis Hunter recommends his clients create a testamentary trust, giving their children a quarter of their inheritance at age 25, another quarter at age 30, and the remainder at age 35.
3. FOR YOUNG FAMILIES, THE MOST IMPORTANT THING IS THE CHILDREN
If you’ve got children who are under 18, the estate planning process is critical, as this is your opportunity to name the person or persons who will be responsible for the care of your children if both their parents pass away. If you don’t spell this out in writing, a judge will make the decision.
4. NOT ALL OF YOUR ASSETS ARE COVERED UNDER YOUR WILL
Some investments, including life insurance payments and retirement accounts, “pass outside” the will, which means the beneficiaries you’ve designated for those assets will supersede anything you’ve written in your will. This is one of the easiest aspects of estate planning (all you have to do is change the beneficiary online or call your plan provider). Still, it’s one of the most overlooked, estate planners say.
5. DON’T FORGET ABOUT THESE ADDITIONAL DOCUMENTS
Estate planning is meant to make sure your wishes are carried out not only in death, but also in the event that you’re incapacitated. For most people, that means also drawing up documents spelling out power of attorney, which appoints someone to access your accounts and make financial decisions on your behalf; and a health care proxy, which covers medical choices.
Then make sure to tell the folks you’ve appointed that you’ve actually done so, once you’ve gotten their OK. “If you do the estate plan, but don’t tell anyone what’s covered and where the documentation is, you may as well not even bother,” says Robert Stammers, director of investor education at the CFA Institute.
6. PASSWORDS ARE IMPORTANT
With so much of our life online these days, estate planning should also account for what happens to your online identity and accounts after you’ve passed away. This applies not only to bank and retirement accounts, but also to email accounts, photo sites, and social media profiles.
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A survey by Rocketlawyer found that 93 percent of Americans with digital assets don’t know or are misinformed about what will happen to those assets when they die. Planners recommend writing down a statement of how you’d like your online identity to be handled, and appointing one person to be responsible for shutting down or transferring profiles and blogs.
7. REVISIT YOUR PLAN FROM TIME TO TIME
Any time you have a change in “life status,” such as marriage, divorce or the birth of a child, you need to update your estate plan accordingly. “Life happens, family and friends come in and out of your network,” McIntyre says. “You have to make sure that your documents reflect that.”
Barring such events, take a fresh look at your plan and documents every five to seven years and revise as needed, based on changes to your income or tax laws.