Americans Lack Basic Estate Plans

Half of Americans don't have any of the most basic estate planning documents, including a will, a living will and financial and medical powers of attorney, needed to protect them (and their assets) if they're incapacitated, according to a new survey. The national telephone survey of 1,022 adults, conducted in December by Harris Interactive for Lawyers.com, a unit of Reed Elsevier, found that many of those who had done no planning were deterred by the legal cost and mistakenly believed that those without large assets didn't need to plan.

Of those surveyed, only 35% have a will directing who gets their assets and only 29% have a living will that states their views on end of life medical procedures. Not surprisingly, older Americans were more likely to have made some preparations: 77% of adults over 55 had signed at least one of the needed documents, compared with 24% of those under 35. There was no noticeable difference in planning between men and women, but Americans with more education were far more likely to have planned.

Even the oldest respondents were hardly well prepared. For example, only 48% of those 65 and older said they a financial power in place authorizing someone to make financial decisions for them if they were incapacitated and only 51% said they had a health care power in place. Perhaps spurred by hospital admissions personnel, who usually ask if admitted patients have a living will, 58% of those 65 and older reporting having this crucial document.

The survey delved into why so many Americans lack estate planning documents. In a sign that the recession is taking its toll on planning, 44% of those without any documents said the reason was because they were more focused on "essentials" like paying bills and buying groceries. Feeding the neglect, however, were misconceptions about the primary purpose of estate documents or what might happen if someone hasn't planned.

So what should you consider doing given these potential changes? "

For example, 19% of those with no documents said they didn't have sufficient assets to warrant estate planning. Yet wealth and the estate tax have little to do with the need for basic legal documents should you become disabled. "What a lot of folks don't appreciate, and this is consistent across income levels, is there are a lot of reasons to do planning that are wholly unrelated to estate taxes," says Dana Fitzsimons, an estate lawyer with McGuire Woods in Richmond, Va. For example, without a living will and proper powers of attorney, your family might have to go through costly court proceedings to get a judge to appoint someone to make medical decisions for you. Or, as in the tragic and much politicized Terry Schiavo case, family members could be driven apart by disagreements over what your end-of-life wishes really are. "Uncertainty can cause disagreements and rifts in family," warns Fitzsimons.

Even if there are no end of life questions, you need at least a basic will to make sure the right person gets your assets. Most couples without estates big enough to be taxable write "I love you" wills leaving everything to each other. But if a husband or wife dies without a will, the surviving spouse inherits everything in only 16 states.
Of course, the higher your net worth the more complicated--and tax-driven--estate planning becomes. The federal estate tax is in a state of flux. It has been temporarily repealed for 2010, although it could be reinstated retroactively. Under current law it is set to spring back to life in 2011 with a $1 million per estate exemption.