Estate Planning for the Self-Employed: A Helpful Guide

As a self-employed writer, I don't have a set retirement date. It would be tempting to keep putting off the unpleasant task of facing my own death and what happens after. However, as scheduled as my work life is with deadlines and such, it would be ironic if my death did not happen on schedule and my heirs were left with a mess to clean up. No, I'm not rich and I don't have a huge estate (at least not yet), but since I am so responsible in other areas of my life, I feel compelled to be responsible about my death too. Plus, I hate to fail and those who fail to plan . . . fail. So, in fairness to my husband and children and because I own a business (which complicates my estate), it's time to come up with an estate plan.

Few people enjoy estate planning because it requires thinking about an unpleasant topic - death. It's important to have a basic estate plan in place if you are self-employed. Consider the benefits:

You decide what happens when you die - who gets what, who doesn't get a thing and a piece of paper makes it legal - your heirs must obey your wishes - or at least if your heirs don't act right once you are gone they'll have a legal document over which to argue.

A plan ensures that your family is taken care of after you die. My father takes the whole planning thing one step further and has left me detailed written instructions about not only what he wants, but how to bring it about and where to find every piece of important information. I plan to follow suit so those I leave behind will have a road map.

As a sole proprietor, the obligations of your business as well as the assets of your business are considered your personal assets and liabilities. You'll want to think about how your estate should handle your business obligations and to whom you want to bequeath your business assets. With these business items flowing over into your personal items, estate planning (and having adequate insurance) is all the more important for the self-employed.

You can't decide who gets what if you don't know what the "what" is, thus, you'll need to take stock of your stuff. Ask yourself who gets your stuff and who should handle your stuff if you are unable to (that senior moment becomes permanent in other words). You might also consider yourself and decide who should handle decisions related to your medical care if you are unable. The answers to these questions are set in a few legal documents that I will discuss below.

You Do Have a Will - Right?

Dying intestate (without a will) can be costly and leaves you with no say over who gets your stuff. A will lets you name who should look after your children and who gets (or doesn't get) your stuff. I submit that those of you who take the "who cares, I'll be dead and won't know anyway" approach may be shortsighted.

Your Living Will

A living will states your wishes for the kind of life-sustaining medical intervention you want, or don't want, in the event that you become terminally ill or unable to communicate. This is the "pull the plug" or "don't pull the plug" decision. I don't know about you, but I want my wishes documented so that I'm not still here five years after I'm not all here if you get my drift.

Power of Attorney and Durable Power of Attorney for Healthcare

I already have the occasional "senior moment." If that gets worse I want to have already granted someone I trust the power of attorney. That person, also known as my "attorney in fact" can manage my financial affairs. Why bother? Because if you become incapacitated without having assigned power of attorney, the court will appoint a guardian for you. What if the person the court appoints does not like you or is an idiot? The court may even charge your estate when it puts the moron (or frenemy) in charge of your affairs so it will pay to select someone before the need arises.

The durable power of attorney for healthcare states who is in charge of your healthcare if you are incapacitated. Make sure you name someone you trust with your life because you will literally be doing that with this document.

Your Trust

I went to school with a few trust fund babies. But trusts are not the exclusive purview of the rich. If you are self-employed, you'll want a trust to handle your business after you are gone, even if it's just the disposition of the assets and the closing of the doors. There are details to consider - How should the closing of your business be handled? What about the business assets? Who gets the proceeds of the sale?

A trust is also a good idea if you want to put conditions on when your heirs inherit - such as graduating from college or reaching a certain age. Or, if you want your children from a first marriage to get your estate after your surviving spouse dies.

Trusts can also help you and your spouse maximize your estate-tax exemptions. I had thought that I would leave everything to my husband. He knows my wishes and will make sure the children get their fair share of the stuff I have accumulated over a lifetime. Unfortunately, that's not good planning because what I'm really doing is not using my estate tax exemption and moving everything over to my husband's estate when he dies. With his estate increase, the children get his with a bigger estate tax bill. A trust can minimize the tax bill and minimizing tax bills is always a good idea.

You Can Give Before you are Gone

Rather than concentrating solely on what happens after death, a complete estate plan also considers how much to give while you are alive and are around to feel the joy of giving. For instance, you can pay for your someone's education. The person doesn't even have to be related to you. As long as you give the money directly to the college or university, there is no limit on the amount you can give. You can also give up to $12,000 a year in cash or assets to as many people as you like.

This planning thing appeals to me. I always have a "Plan B" for most situations anyway, so I might as well plan my estate. I hope you take the plunge and do the same. As always, it's a good idea to consult with an expert.