1. Have a will or trust

If you do not have a will, the state will decide who gets your property. Many seniors need only a simple will to accomplish their goals. Others have living trusts to avoid probate or reduce estate and gift taxes. These documents are never "one size fits all." Your will or trust should be carefully crafted to meet your specific needs.

2. Choose trustees and executors wisely

When you become a successor trustee or an executor, you step out of the role of family member and into that of special fiduciary. One common problem is that of the spouse/trustee who fails to acknowledge the kids' rights to proper accountings and prudent money management. A fiduciary must be impartial. Think hard about whether the person you select to administer your estate is suited for the task. Make sure your executor, trustee or trusted family member(s) know where you keep your important papers. Likewise they should know who would care for your pets in the event of an emergency or your death. Ideally, you will have included a provision for care of your pets in your will or trust.

3. Take full advantage of your federal Unified Gift and Estate Tax Credit

The death tax exemption (previously $600,000) is increasing and will eventually top out at $1 million in 2006. This tax credit allows you to pass the first $675,000 of assets this year and next to your beneficiaries free of estate tax, a savings of $220,550 (the amount of tax on $675,000). While married people can pass an unlimited amount of assets to the other free of estate or gift taxes, the heirs will pay increased taxes when the second spouse dies if the Unified Credit is not used when the first spouse dies. Make this tax credit work for you by having a trust in place before the first of you dies.

4. Avoid capital gains taxes by using highly appreciated assets for gifts to charity

In addition to an income tax deduction and reduction in the amount of assets in your estate, a non-cash gift to a qualified charity can produce additional tax savings. For example, if you sold stock you had held for more than one year, then donated the money to charity, you would get the deduction but would owe capital gains tax. By donating the stock itself you eliminate the tax. If you make the gift to your children in your will or trust and they held the stock, then sold, they would owe capital gains tax. If, however, you gift the stock to charity and use other assets for your children's gift, your estate gets a deduction, the children avoid the tax, and the charity pays no tax; a win-win situation.

5. Set up a gifting program to reduce inheritance taxes

You can reduce the assets of your estate and subsequent inheritance tax liability by starting a gifting program now. You can gift up to $10,000 (adjusted for inflation every year) per person, per year without incurring gift tax. Thanks to a recent tax law, payments for children's education made directly to the educational institution are exempt from gift tax.

6. Understand how your life insurance works

If you own the policy on your life, it will be included in the gross value of your estate. Consider establishing an irrevocable trust to own the policy. The proceeds can be used as part of your gifting program or to pay estate taxes. You should know whether your policies are cash value policies versus term policies, and how each type of policy affects your estate.

7. Know how your bank accounts are titled

Certain bank accounts and securities, known as POD ("pay on death") or TOD ("transfer on death") accounts, are useful devices to avoid probate but can defeat your estate plan. The designated beneficiary has no right to the account when you are alive, but the funds in the account belong to him or her when you die, regardless of what your will says. With a joint tenancy account, the other person has rights to your account during your life. Examine your signature cards at your bank to determine whether you have unwittingly given someone either a present right to your account or a right to the account when you die.

8. Use beneficiary designations wisely

Life insurance, pensions and annuities pass directly to the named beneficiaries when you die. If you do not designate a beneficiary, if your only beneficiary dies before you, or if you designate your "estate," the asset may be subject to probate. A good estate planning attorney will look at all your assets, whether or not they are subject to probate, and will counsel you on how to best use those assets in your estate plan.

9. Plan for the cost of nursing home care

Medicare only pays for "skilled" care in a nursing home for a limited period of time, and not at all for custodial care. If you can not "self-insure," consider purchasing long-term care insurance. There are many different plans available. The average cost of care in nursing homes in this area is over $3,500 per month. Long-term care insurance is expensive but is only a fraction of what the care costs. Contact your insurance agent or HICAP (the Health Insurance Counseling and Advocacy Program) at 443-9747.

10. Keep sufficient liquid assets to pay death expenses and taxes

POD accounts are useful for giving immediate access to funds needed for funeral or burial, because they are not part of your estate. If your estate will be subject to Estate and Gift Tax, plan now for how the taxes will be paid. Will you use life insurance, loans or cash reserves? Without proper planning, your estate representative could be forced to sell real property or securities under non-optimum conditions. Catherine M. "Cat" Koshkin is an attorney in Arcata. She limits her practice to estate planning, trusts, wills, probate, elder law and bankruptcy. She can be reached at 707-822-2800 or by e-mail at ckoshkin@humboldt1.com.