Retirement planning is difficult, because it depends on so many variables. Although I haven't read it, I like the title of Ralph Warner's "Get a Life: You Don't Need a Million to Retire Well" (Nolo Press), . It discusses how to estimate your retirement income and expenses realistically. You win if you have enough wealth for your own needs and to care for your children; having more than enough doesn't mean a bigger win. Estate planning can help you get the most benefit out of any excess.

Estate planning is fairly easy, if you just want to divide up your assets among your heirs with a minimum of taxes, expense, and delay. Estate protection books that I have read include Denis Clifford's "Estate Planning Basics," Mary Randolph's "8 Ways to Avoid Probate," and Denis Clifford's "Make Your Own Living Trust," all from Nolo Press (, <.../0873375289/...>, and <.../0873375564/...>). Each book covers the same material, but with differing emphasis and depth of examples. The last is the most detailed and complete, but harder to grok.

I also read Harold Boucher's "California Living Trusts and Wills" (Pennoyer Press), which is not as clear and simple. Nolo books help you do your own legal documents, but Bucher recommends that you call in a professional. Maybe that's wise. In the Nolo books, only the third mentioned even in passing that income is taxed much more heavily in a child's trust than in a conservatorship under the Uniform Transfers to Minors Act. However, it doesn't point out that the child's trust can be managed to minimize undistributed income, or that UTMA trusts can't be set up for children over 18 (even where such a trust can continue until age 25). A tax professional should know that level of detail.

What it all boils down to is that simple estates can be passed via wills and beneficiary designations, larger estates should usually be held in a living trust, and very large estates need a tax lawyer. Beware seminars, self-help books, and other sources of packaged plans if your needs are at all unusual.

A chief reason for seeking estate protection is to avoid probate. Probate is when your will goes through court, taking months (or sometimes years) to settle all the claims. The executor and lawyers get a fixed fee for this, usually a large fee for very little work. Non-probate instruments simplify and speed things up, save money, and keep your estate distribution private. (However, they don't legally settle all claims that could someday arise.)

Life insurance may be passed to a beneficiary, rather than paid to your estate. That keeps the proceeds out of probate. Ditto for IRAs, 401(K)s, and other retirement accounts. Bank and brokerage accounts can usually be passed by designating a beneficiary, if you set them up that way. California and Missouri also allow cars to be transferred on death. In other situations, you may want to use joint ownership to pass property. (Setting up joint ownership may create a taxable gift. You should talk with a lawyer before creating or terminating joint tenancies.)

Real estate can be tricky, depending on what state you're in and how you hold title. You can bequeath the property in your will, but then it has to go through probate (unless it is worth very little). If the title is held jointly with right of survivorship, maybe you don't need to do anything. In other cases, it's often best to put the house into a living trust. You retain full control, but on your death(s) the property is given to your specified beneficiaries. Your spouse can continue to use the assets and any income from them until his or her death.

If you've got a living trust, it can hold and distribute pretty much anything you own. (Vehicles are typically left outside the trust for insurance reasons, and bank or checking accounts may be left outside for convenience.) The living trust can also arrange for your maintenance if you become mentally incompetent, and can include child subtrusts to manage any bequests to your children (to any specified age). You and your wife also need back-up or flow-over wills for untransferred property and to appoint a guardian and property manager for any minor children. You should also create documents that assign durable powers of attorney for finance and health care, enabling others to make decisions when you cannot.

None of the above have any effect on inheritance tax. For that you may want a marital (or AB) living trust, a QTIP (possibly within an ABC trust), or other irrevocable gift or trust. An AB trust is common for joint estates under about $2M. (The US unified gift/estate tax lifetime exclusion limit is currently $675K per spouse, but is scheduled for $1M each in 2006.) US estate tax currently starts at 37% and goes up to 55% for estates over $3M. Money given while you are alive is taxed more lightly than bequests, so the best way to shelter your estate from taxes is to give it away.

Gifts of up to $10K per year per recipient are free of gift tax, so don't count them toward your lifetime exclusion amount. You and your spouse can each give that much to someone. Bequests in your will generally do not escape gift/estate tax, unless given to a recognized charity. Taxes are lower on assets given before they appreciate than on assets that are held and then given after their value increases. (If you give to charity, neither you nor the charity has to pay tax on appreciated value. Charities will be happy to help you make such gifts.)

With an AB trust, the living trust splits into an A Trust and a B Trust when the first spouse dies. One subtrust -- the bypass trust -- is irrevocable and holds money destined for children or designated beneficiaries. Income from the bypass trust goes to the surviving spouse during his or her lifetime, and the principle can be used for basic support or medical care if other assets have been exhausted. The other subtrust is a revocable living trust holding the remainder of the surviving spouse's estate, and can be spent for nearly any purpose. This strategy permits a maximum gift/estate tax exclusion for each spouse, rather than losing any remaining gift/estate tax exemption for the first spouse to die.

A QTIP trust is a similar irrevocable trust, except that estate tax is levied when the trust is paid out rather than when it is created and funded. This delays payment of estate tax until the second spouse dies, but the taxed estate may well be much larger at that time. (However, both major political parties are talking about raising the marital exclusion or doing away with estate tax completely.) QTIPS are often used within second marriages, to protect money destined for first-marriage children.

At the opposite extreme is the "disclaimer trust" -- not discussed in these four books -- where all assets are left to the surviving spouse, but with any disclaimed (refused) assets put into a trust for other beneficiaries. This maintains maximum flexibility. The secondary trust might be a "family pot" or "sprinkling" trust, which can be used as needed for family support until it is finally paid out in equal shares (or unequal shares, if you prefer). As with a bypass trust, the surviving spouse gets all income from the disclaimer trust and can use the principle if necessary.

Your assets might also be passed via a qualified personal residence trust (QPRT) or grantor retained annuity trust (GRAT), if you set one up before Congress closes these loopholes. Tax lawyers and estate planners can implement charitable remainder trusts, generation-skipping trusts, life insurance trusts, family limited partnerships, and other instruments for partially sheltering large estates.

I've studied the Nolo living trust examples and two living trust documents prepared by lawyers. The Nolo version was much better than the work of the general-practice lawyer and significantly less tight than that of the leading-edge tax lawyer. (Tight in the same sense as tight, elegant computer code that covers common possibilities with a minimum of duplicate language.) In each case there were details that were handled more explicitly in the other documents, though I don't know if the omissions would have legal consequences. The Nolo version seemed good enough, though somewhat redundant and inelegantly structured.

Living trust specialists -- e.g., seminar presenters -- can set up simple AB trusts, but the salesman's expertise may be limited to this one instrument. Often what is offered is a fancy printout in a thick, illustrated binder. Buy it only if you know what you need and are satisfied with the cost. The trusts are revokable and easily amended, but it's your own responsibility to track changes in the tax laws.

Bottom line: read at least one of the Nolo Press books -- sort of dummy's guides to US law -- if your net worth is over your state's limit for simplified probate. (CA and OR are the highest, at $100K and $140K. You can exclude anything passed with right of survivorship (WROS), or, in CA only, as community property without specifying WROS. Most states also exclude any bank accounts or vehicles passed by beneficiary designation.) If you have substantial probatable assets, consider a living trust or a marital (AB) living trust, or see an estate planner, estate lawyer, tax lawyer, or tax accountant. Some lawyers charge by the hour for setting up the basic documents, others have fixed fees or negotiated fees. You can expect to pay $1K-$2K for a simple marital living trust, backup wills, and durable powers of attorney for finance and health care, if you don't use the Nolo software or book forms.

----- "If you can give your children only one gift, let it be enthusiasm!" -- Bruce Barton. -----