Consider this a cautionary tale: A Cincinnati widower"”we'll call him John Doe"”had one child, a son. Over the years, he and the son grew apart"”he'd actually not seen the child for 30 years and didn't even know where he lived.

Mr. Doe, meanwhile, enjoyed a long-term, 20-year relationship with a woman to whom he wished to leave all his property at his death. Deciding to prepare his own will, he printed a generic form from the internet. He filled it out, leaving all his property to his companion and only a small amount to his son.

Unfortunately, Mr. Doe had his companion serve as one of the two witnesses. Under Ohio law, because she witnessed the will, the bequest to her became void, with the result that the estranged son inherited his father's entire estate.

The longtime companion received nothing.

"In this true-life case, the widower's attempt to save a few dollars resulted in dire consequences for a person he loved," notes attorney Mark S. Bever, of the Cincinnati law firm Schwartz Manes Ruby & Slovin, who has worked for years as a magistrate in the Hamilton County Probate Court.

"For people who have not yet taken steps to put their plans in place"”they don't want to spend the money, they're too busy, they can't decide who should receive their property or be guardian of their minor children, they don't want to talk about dying, or they think estate planning is only for the very wealthy"”this unfortunate outcome ought to motivate them to seek advice from an experienced estate planning attorney before it's too late," Bever continues.

WHAT IS ESTATE PLANNING?

Horror stories. They abound in the world of inheritance, a plethora of saddening scenarios that see entire estates going to the wrong people"”or to the government"” despite the well-meaning intentions of everyone.

You don't think twice about locking your front door at night. Or snapping on your seat belt inside your car. So why would you play fast-and-loose with everything you've ever worked for"”your house, cars, all your worldly assets? The answer, of course, is that you probably don't even know when you are playing fast-and-loose.

There's a misconceived notion that only the very wealthy"”and perhaps aged"”need to consider estate planning, say local experts.
Not at all, points out Marshall K. Dosker, an attorney with Strauss & Troy law firm. "Say I sit down with a young couple. I will tell them they really need to consider reciprocal wills.

"What if they both die in a common accident? Wh'™s going to be the executor of the estate? I ask them to pick out guardians for their minor children."

Adds Michael Barnes, vice president and principle at Johnson Trust Company: "Estate planning is for more than just rich people. Everyone has issues."

Estate planning is about both property and your own body and mind. And it is about taking control of decision-making"”the decision of a lifetime, in fact"”so your family doesn't have to.

Under the category of property, the estate planner"”using tools such as wills and trusts"”works to assure that you have left a clear plan to your survivors and beneficiaries in order to surmount any legal challenges or family misunderstandings and/or squabbles.

Under the category of body and mind, the estate planner address lifetime issues such as preparing for mental and physical challenges and infirmities.

"Arguably, estate planning is one of the most important things you will ever do," says Robert W. Buechner of  Buechner, Haffer, Meyers & Koenig Co., LPA. Buechner, who is president of the Cincinnati Estate Planning Council, adds: "Since you have spent your lifetime building an estate for yourself and your family, you want to keep it with the people you love by paying the lowest amount of taxes and other expenses (including legal fees) possible.  There are multiple techniques to accomplish this.

"Estate planning is a process.  What is done today needs to be right for the near term, but also needs to be done with the realization that it generally can be easily changed."

THE FIRST STEP: A WILL ...

Drafting a will, of course, is critical. Think about this: If you died tomorrow, what would you want to happen? Then think, without a will, a plan of direction, would everything you expected to happen actually happen?

No, probably not, say Tristate estate planners, not if you haven't left a legally viable "road map."

Everyone should have a will, in order to name an "executor" (and an alternate) to represent your wishes and bequests"”even among battling family members who don't agree with your choices. The will also names a guardian for your children, should you have under-age dependents. Consider also a beneficiary designation form for any accounts, such as joint bank accounts or 401(k)s, that direct where that money should go.

If you die without executing a will, you die "intestate." If you don't specify how to divide your estate, then"”most assuredly"”the government will.

"All your property will be subject to a court-ordered guardian," observes Strauss & Troy's Dosker, whose practice includes a major portion associated with succession and estate planning. "The court, the county, would preside over it through an administrator who might not be the guardian of your children. Which, in my opinion, is very burdensome."

Succession laws will force your family to go through probate court to claim ownership of your assets, a claim that the state may deny. Probate is the process whereby the court supervises the transfer of the assets of a decedent, and there are accompanying probate fees"”sometimes as much as 5 percent of the estate's worth"”as well as attorney fees.

If no heirs fit the state's formula, your hard-earned assets may well end up in the hands of that same state. This, after many delays waiting for the court to make decisions on a variety of steps and factors. Investment decisions are often frozen by this inertia.

Talk to your estate planner about establishing a trust, which can circumvent probate entirely. While you're alive, a trust shouldn't complicate your life in the least. No special tax returns, no paperwork hoops to jump through. In addition, the document establishing a trust is private (while a will admitted to probate becomes a matter of public record).

"You can actually read peoples' wills online in Hamilton County," points out Jay Wertz, a portfolio manager and principle with Johnson Investment Counsel. "Bypassing probate is certainly more efficient, and it offers privacy."

IN TRUSTS THEY TRUST

So spending a few hundred dollars now on estate planning and documentation can clearly save your heirs a lot later.
Consider, also, if your beneficiaries need to be protected from themselves (teen children, for instance, who need to be given the money in installments throughout their lives, rather than in a single lump sum that could be frittered away on a Porsche instead of house).

Establishing a trust may be the way to go, suggest planners in the know. A trust allows you to distribute money to whomever you want, when you want, and for the specific purposes you indicate. "I suggest postponing distribution" of money directly to young people, says Dosker. "I suggest three bites of the apple, at ages 25, 35, 45."

Another reason for a trust. "Setting up a trust means the guardian is not under review of the court in how he spends the money on the children," observes Dosker, who practices on both sides of the river and eyes developing legal legislation in both states carefully.

"One of the biggest things coming down the pike is the new Ohio Trust Code," addressing trust law and common case law, Dosker warns. Effective next Jan. 1, "it will affect existing trusts in a variety of ways. It will have people looking at a few different provisions of trust and trust administration."

DEATH AND TAXES

"You can leave anything you want to a spouse, free of tax," notes Dosker. Everything else can be taxed, unless shelters and trusts are in place.

The current death tax rate is 47 percent of total assets above $2 million. That means within nine months of death, the government can get 47 percent of the value of everything you possess"”automobiles, home, household belongings, investments, 401(k)s, the works.

And "while there's lots of talk about eliminating estate taxes at the federal level, I would say that's a moving target at this point," says Barnes of Johnson Trust Company. "And there still are state taxes."

How do you go about choosing an estate planner? "Estate planning is just one aspect of your financial life," suggests Buechner, the president of the Cincinnati Estate Planning Council. "Many people create a "team" of financial advisors that includes a tax accountant, tax attorney (estate planner), life underwriter, investment advisor, and a financial planner.

"In terms of choosing financial professionals, you should pick people with whom you are comfortable and trust. ... You should feel that the professional has your best interests at heart and is working to implement your financial goals."

ON THE INVESTMENT SIDE

"There are two very important steps in estate planning," notes Barnes. "There is the planning part, but there is the equally important part of implementing the plan."

It's vital that, as new assets come into play during the course of a person's lifetime, those assets are correctly accounted for and titled.
"What I find in working with clients is they think the work is done when they've signed the documents," says Wertz of Johnson Investment Counsel, which is the parent company of Johnson Trust.

"But estate planners can review [on a routine schedule] and make sure assets are titled correctly."

"Our approach to wealth management is that it's a broad series of topics," adds Barnes. "The plan needs to be reviewed on a regular basis. Peoples lives, and assets, change."

SPEAKING OF INSURANCE

And what role does life insurance play in estate planning?

Consider an irrevocable life insurance trust (ILIT). The ILIT can be designed to provide life insurance benefits for heirs outside of the gross estate.

"Insurance is taxed if you own it at the time you die," says Dosker. "You want to exclude it from your estate. The ILIT is one of the most common things people don't do, don't set up."

"A life insurance policy can create a sizable income tax-free death benefit, to provide needed liquidity in the estate," notes Andy Varga, district sales manager for American Family Insurance. "If properly structured through the proper ownership and beneficiary designation, the proceeds may be outside the estate and not subject to federal estate tax."

Varga also suggests that using a UNIT to own the policy and receive the proceeds is an effective tool in large estates, to keep the proceeds from being subject to the federal estate tax. "Life insurance proceeds can help provide income tax-free money to offset the tax consequences on qualified plan distributions, such as from IRAs."

Adds Varga: "Life insurance death proceeds can help equalize an estate when a business is being passed down to children. The children that are not intended to inherit the business can receive the death proceeds as a share of their inheritance."

Attorney Mark S. Bever of Schwartz Manes Ruby & Slovin shares these true-life horror stories, taken from scenarios in his legal practice and his work as a magistrate at the Probate Court:

No Power of Attorney, No Good Luck
 
A single gentleman in his 60s crashed his motorcycle and was in the hospital in a coma for several months. He owned a house, bank accounts, a brokerage account, and several rental properties that were titled in his name alone.

He had not executed a Power of Attorney document that would have named an attorney-in-fact to handle his financial affairs in the event he became incapacitated. Without the Power of Attorney, no person had legal authority to pay his medical expenses, insurance, utilities, and other bills, and no person could legally collect his tenants' rent checks.

His brother was forced to have himself appointed guardian by the probate judge to gain that authority. It took three weeks for the hearing to be held in the court. He had to testify in court, obtain a fiduciary's bond, file a detailed inventory of his brother's assets, change the title on the bank and brokerage accounts to the name of the guardian, and each year prepare a detailed accounting to be reviewed by the court that listed all receipts and expenditures, with copies of bank statements and canceled checks as proof.

He also had to gain prior approval from the court before he could spend any of his brother's money, and the guardian's attorney had to counter-sign each check he wrote.

Joint Tenancy with Rights of Survivorship: A Bad Idea

An elderly woman wanted her children to receive her money at her death. She had an attorney write a will giving all her property to her five children equally. She kept all her funds at a financial institution in CDs and checking, savings, and money market accounts. Only one of the five children lived in the state. She placed all her CDs and other accounts in joint names with the local child, thinking that as she became older she would need to have the child help her make deposits and pay bills, and that it would be convenient for the child to have access to the accounts.

After she passed away, however, the child redeemed the accounts and kept all the funds. Under Ohio law, the accounts were considered joint accounts with rights of survivorship, and the child did not have to share the funds with the four siblings despite their mother's clear directions in her will.

Do-it-yourself Planning Equals Needless Taxes

Nearly all of an elderly woman's assets consisted of stock of the Fortune 500 company from which her husband had retired many years ago. She did not have a good grasp on how much the stock was worth, and she did not generally discuss her financial affairs with her three children.

She had read about the cost and delay of probate, and she heard from a friend that if she put her shares in joint names with her children and grandchildren, her estate would not have to go through probate. She had also heard about estate taxes, but she believed that adding her descendants' names on the shares would avoid any tax. The friend was right"”her family saved a few thousand dollars because her stock passed automatically and without probate to her children and grandchildren. Her family, however, had to write checks to the federal government and the State of Ohio totaling almost $1 million because her joint ownership did not exempt the stock from estate taxes. If for the last eight years of her life she had implemented the simplest of plans by giving her children and ten grandchildren $10,000 each per year, she would have saved her family more than $500,000 in estate taxes.

Who Will Care for Your Minor Children?

A couple in their early 30s had one small child. The wife died of cancer. Less than a year later, the husband was killed in a car accident. The parents had not executed wills with which they could have declared who was to serve as guardian of the child in the event of their untimely deaths.

Two sisters, one from each side of the family, stepped forward, each claiming that she believed the parents would have wanted her to be guardian. Each hired an attorney and filed an application with the Probate Court asking to be appointed guardian.

The court's clerk shook the little jar that was on her desk and randomly pulled out the name of one of the court's six magistrates. That magistrate, who had never met the parents, was the person who decided, after two days of rancorous testimony, where the child would grow up and who would care for the child until age 18.