How to Avoid a Death Trap

When parents don't specify in wills, their grown children often disagree over who gets what.

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When Steven Kopp went home to Orlando to visit his parents earlier this year, they took him to see what will one day be their final resting place. They explained to him how they chose the simple spot in a cemetery near their home.

Such openness about death is rare, as Kopp well knows. The business professor at the University of Arkansas studies why people don't better plan what they want to happen after they die and the economic costs of failing to do so. "Many people have a resistance to even thinking about the events involved in dying," Kopp says. That lack of awareness and planning can make death more stressful and more costly for family members as they struggle to quickly plan a funeral and think about dividing up family property while grieving.

When parents don't specify the distribution of assets, their grown children often disagree over who gets what, says Bill Wilson, an estate lawyer in La Grange, Ill. "Money does strange things to people. You think you see happy families, but once you start carving up the estate, it's just a cause for acrimony."

Even without turmoil, dying without clear instructions often means assets are distributed according to state law, not family preferences. According to an aarp survey, more than one third of Americans over 50 lack a will, living trust, or power of attorney. Whether you share a tax bracket with Oprah or are struggling to pay off a mortgage, the first step involves list-making. What valuable things do you own? Some, such as retirement accounts, usually already name a beneficiary, but other assets, such as a house or a vintage car, will need to have their next owner specified.

Once you decide who gets what, then it's time to formalize those preferences in a will. Most estate planners recommend updating it every few years to reflect new assets and births in the family (as well as rifts). Many people also choose someone, often a family member, to have power of attorney over their finances in case they are incapacitated. But choose wisely, warns Jean Setzfand, director of financial security for AARP. Indeed, many financial institutions now require an in-person meeting to confirm that the person is a credible agent, she says.

Estate lawyers can explain state and federal tax laws and the pros and cons of creating a living trust to be disbursed after death. People with assets over $2 million, for example, may want to consider slowly transferring money to children before death to lower estate-tax payments, Wilson says. (The amount at which the federal estate tax kicks in is $2 million for this year and next; in 2009, it will rise to $3.5 million. There will be no estate tax in 2010, but in the following years, unless Congress takes action, the tax will revert to its 2001 cutoff of $1 million.)

The will is also a good place for funeral preferences, which vary wildly in their cost. A simple cremation usually costs a few hundred dollars, while a full-service funeral can easily exceed $5,000. The average funeral, excluding burial expenses, costs $6,580, according to the National Funeral Directors Association. As with gift-giving, people tend to spend more money on someone else than that person would have done, Kopp says, especially when they are grieving and rushed. Planning ahead can save money that instead can go to a memorial fund, help survivors pay down debt, or send kids to college.

None of this preparation can change the fact that life is short, but it can make it easier for family members to focus on their loss instead of on how to pay for a mahogany casket or who gets that antique diamond watch.