July 16, 2005

For motivated people, this is a great opportunity to put the "personal" back in finance.

Thanks largely to the Internet, do-it-yourselfers will find no shortage of tools to build investment portfolios, buy insurance, prepare tax returns or shop for loans. Handling your money directly can instill confidence and a sense of control.

One area still requires laymen to tread carefully: estate planning. In this complex field, it's often best to hire an attorney to avoid mistakes, especially if you have a complex situation and substantial assets.

"Why go to a surgeon if you need an operation?" asked Robert Hughes, Phoenix estate-planning attorney. "Trying to do it yourself can be a mistake."

Estate planning touches on sensitive family relationships, in which it can be wise to receive guidance from an impartial third party. Also, without professional help, chances are good you'll never spot your estate-planning mistakes - because by the time a problem arises, you may be dead.

Estate planning, after all, focuses on transferring assets after you die. If you leave vague instructions, it can take a court battle to sort it all out. What follows is a short list of documents you may need, plus ballpark preparation costs.

Simple wills. With these, you state to whom you want to leave assets and provide other instructions. For example, wills let you name guardians for your minor children.

Wills are underutilized; an estimated 55 percent of Americans lack one, according to a May survey by FindLaw.com. Even people with wills don't always update them to reflect births, deaths, divorces.

"Your kids grow up and your financial situation changes," said Joe McCabe, an estate-planning attorney at McCabe O'Donnell in Phoenix. "At a minimum, look at your estate plan at least every five years."

Wills won't keep assets out of probate, the court-administered process of wrapping up the affairs of a deceased person. Even in uncontested cases, probate costs can run a couple of thousand dollars.

Don't confuse regular wills with living wills, which express your desire to be put on or kept off life-support systems. Those, too, are good to have, as illustrated by the Terry Schiavo case. Yet 67 percent of Americans lack a living will, FindLaw.com reports.

Your cost: Ballpark costs for wills range from less than $20 for software or Internet forms to several hundred dollars or more if drawn up by certain attorneys. Living wills are less - around $15 and up for Internet help. Office-supply stores sell wills and other estate-planning forms for minimal cost.

Beneficiary deeds. These documents, available in Arizona since 2001, are a simple, efficient way to transfer Arizona real estate, probate free.

Beneficiary deeds can be suitable for widows, widowers and other single people who want to transfer property to adult children, siblings or others without sharing ownership just yet. The deeds don't take effect until the owner dies.

It's critical to draw up these deeds properly, with a correct legal description of the property. Also, be sure to record the deed with the county where the real estate is located.

Married couples in Arizona may prefer other options such as titling their homes as "community property with right of survivorship," a probate-avoiding option that provides a potential tax break: When the first spouse dies, his or her share of any capital-gains tax can be eliminated using what's known as a step-up in the property's basis.

Couples who don't use community property with right of survivorship may not have a tax problem since they can shelter up to $500,000 in capital gains on their primary home. Still, the titling option can prove valuable with non-exempt assets like raw land, McCabe said.

Your cost: Beneficiary deeds are hard to find over the Internet and in stores since few states allow them. Expect to pay $75 to a couple of hundred dollars for help from an Arizona attorney or deed preparer. The deeds must be recorded with the appropriate county for $10 or so.

Investment and insurance accounts. Individual Retirement Accounts, 401(k) retirement programs, life insurance and annuities work like separate estate plans since they let you list beneficiaries who will receive your assets at death, probate free.

Just make sure you review the beneficiaries at least every few years. Assets in these accounts will pass to the people named, even if you have a will or trust that states otherwise.

On financial accounts that lack beneficiary designations, you can transfer assets probate free with the following designations using forms supplied by financial firms: pay on death for bank accounts and transfer on death for brokerage accounts. In other words, those titling options do for financial accounts what beneficiary deeds do for real estate.

Your cost: Financial firms let you title accounts using pay or transfer on death for little or no cost.

Powers of attorney. These directives let you name a relative, friend or other representative to make decisions on your behalf if you're still alive but physically or mentally impaired. Directives come in two main types: financial powers of attorney for money matters and health care powers of attorney for medical decisions.

POAs should be updated every couple of years, and health care directives should include what's known as an HIPAA or Health Insurance Portability and Accountability Act release statement. Without one, doctors, pharmacies, hospitals or other health care providers may block your representative's ability to access your patient records, citing privacy.

Your cost: Roughly $15 at Internet sites to a couple of hundred with certain attorneys.

Trusts. These documents let you prepare for more contingencies than you can with a will or other basic directives.

For example, you can name a successor trustee to step in should you become incapacitated. That would stave off the need to have a judge appoint a conservator to handle your affairs. You also can set up a plan to distribute your assets gradually so that your beneficiaries don't squander the funds overnight. Trusts can be handy if your beneficiaries are minors or have special needs.

Trusts also let you avoid probate, including on real estate owned in other states. In addition, they usually provide more privacy than wills, although probate typically doesn't air much personal dirty laundry, at least in Arizona cases.

One mistake people make is neglecting to fund their trusts by titling property to it, thus subjecting those assets to probate, McCabe said.

For example, if you refinanced your mortgage recently, it's possible your lender required you to remove the home from the trust as a condition of receiving the loan. "Once you complete the refinance, you need to title the home back into the trust," Hughes said.

In addition, trusts can help reduce estate taxes, assuming this will be an issue for you.

Most Americans won't face estate taxes, which don't apply to the first $1.5 million in per capita assets for people dying in 2005, with higher amounts scheduled for future years.

Your cost: Professionals typically charge several hundred to a few thousand dollars; some Internet sites offer limited-scope trusts for $200 to $250.

Meanwhile: Republicans in Congress are vowing to revisit estate-tax rules this summer in a way that could subject far fewer people to estate-tax levies. If you have a seven-digit net worth, stay tuned.