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Wills, Trusts and Legal Musts Tonight on AARP Live 10 p.m. ET Online or on RFD-TV

 

Is My Will Still Valid?

The witnesses who signed our power of attorneys and living wills that we drew up ourselves using a software program 10 years ago were employees of a bank who are no longer working there and who gave the bank address as their address. We don't want to change the contents of either document, but we are concerned about whether the documents will still be honored. How can we "refresh" or reaffirm the documents so that they will be honored in case of need?

–Esther, Maryland

It's unlikely that the witnesses will ever be involved in your estate unless the will is contested. If you're still concerned, you should consult with a lawyer in your state. On the other hand, since your will was prepared a decade ago and has not been reviewed, perhaps it's time to ask a lawyer to review it to make sure it's still valid. Much has happened in the last 10 years. Even if your family and financial situation haven't changed, the estate tax regulations and the inheritance tax regulations in many states have changed.

In addition to a will, a basic estate plan usually includes a "durable power of attorney," which delegates the power to legally handle your financial affairs should you become incapacitated, and an "advance directive," which lets you legally direct your health care preferences in the event of your incapacity or terminal illness. Involving a lawyer, which may not cost as much as you think, gives you the added advantage of having someone to consult if your situation changes or if you hear about a change in the regulations that might apply to you.

I am the power of attorney for my mom, who wishes to distribute her savings to her children. How much can she give yearly without tax penalties to her or us? Would it be calendar year or 12 months between gifts?

–Richard, Hawaii

Your mother can give up to $13,000 per calendar year to anyone, so, for example, she could give $26,000 to a couple or $65,000 to a couple with three children. Separate checks should be prepared for each recipient so she can avoid having to fill out an extra tax form. While she cannot deduct the amount of any gift, the recipients don't have to pay taxes on the gift.

Gifts above the $13,000 "annual gift exclusion" limit can be made. However, if larger gifts are contemplated, you should check with an income tax professional about how this can be done and what tax returns your family members will need to file.

If a parent can afford to make a gift, I'm all for it. But, and this is a big "but," anyone who is contemplating making gifts (or any family member acting on behalf of another family member) should make sure that he or she can easily afford those gifts. I'm concerned that your mother apparently wants to "distribute her savings." If she does so, will she be able to pay for any expensive contingency that may arise, like going into a nursing home?

Some families think that if a parent distributes all of his or her savings, then the money won't have to be used to pay nursing-home costs. But that risky strategy could backfire, as the government continues to clamp down on those who prefer to give their money to their children in order to let the taxpayers (that's you and me) pay for nursing home or other care costs.

My wife is about to receive an inheritance. Will the inheritance $ be taxable? If so, what do you recommend to minimize the impact of taxes?

–Ken, Maine

The executor of an estate is generally responsible for paying the federal and state estate taxes, if any. (Only a small number of estates are large enough to incur a federal estate tax, but many more will be subject to state estate taxes.)

There may also be a state inheritance tax due when your wife receives her legacy. States may impose inheritances tax on beneficiaries who receive an inheritance. States assess these taxes in place of, or in addition to, state estate taxes. The inheritance tax is calculated separately for each beneficiary, and each beneficiary is responsible for paying his or her own taxes. Your wife should, therefore, check with the executor for information on whether or not she will be required to pay state inheritance taxes.

To avoid any unpleasant surprises for your beneficiaries when your estate is passed on, you can specify in your will that any inheritance taxes are to be paid by the estate, rather than the beneficiaries.

All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult your financial or tax adviser with regard to your individual situation. Use of the information contained in this Web site is at the sole choice and risk of the reader.

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