Your Money : Live Well, Die Prepared : Personal finance: It's inevitable, so here's our guide to estate planning, funerals and other life-and-death concerns.

By KATHY M. KRISTOF

Sept. 18, 1994 12 AM PT

TIMES STAFF WRITER

Nobody likes to talk about death. But the Grim Reaper eventually comes for us all. And when he does, most people are unprepared--financially speaking, if no other way.

Only about three in 10 Americans have a will. Less than one in four have executed so-called “advance directives” that limit aggressive health treatments when the prognosis is terminal. And a far smaller number have moved to alleviate tax, probate or funeral costs.

“We, as human beings, don’t want to deal with our own mortality. So this is one of those things that people put off,” says Melissa Burkholder, an attorney with the American Assn. of Retired Persons in Washington. “The question is whether you are going to deal with it, or is somebody going to do it for you? And if somebody else does it, are they going to make the same decisions as you would have?”

These are, of course, personal issues that cut to the heart of how you feel about your family and about maintaining control. But they are also financial issues of sweeping importance.

What few people realize is that death is shockingly expensive. Funeral costs alone easily can amount to $6,000. The cost of probate can wipe out a modest estate. Estate taxes can force the liquidation of a family-owned business or the sale of the family home. And dying “intestate”--without a will--can cause your assets to fall into the wrong hands.

These are not issues solely for the elderly. Having a will and simple estate plan is pivotal for young parents, too; their heirs, after all, are more dependent on them than are the adult children of elderly couples.

The good news is that many of these issues can be handled easily and inexpensively--if you plan in advance. Here’s a six-step guide.

Step 1: Writing a Will

Preparing a will is the first step in creating a viable plan that will allow your heirs to survive comfortably in your absence.

In California, a plethora of do-it-yourself wills are completely acceptable. The simplest is a handwritten statement that spells out who you are, what you’ve got and who should get it. These so-called “holographic” wills are simply signed and dated. No witnesses are necessary.

You also can buy fill-in-the-blanks “statutory” wills at virtually any stationery store for $1 to $5. You complete the form, get a few witnesses to sign, and either stick it in your safe deposit box or give it to a trusted friend or relative for safekeeping.

Or you can buy a will kit. The kits--either in book form or computer software--cost $10 to $70. Their advantage over statutory wills? They come with instructions.

Some attorneys criticize do-it-yourself wills, noting that an individual can make important errors and end up with a will that is not valid. Indeed, if you’re elderly, wealthy or have a complicated family arrangement--such as children from different marriages--or complicated desires, you might be wise to hire an attorney.

However, if your aims are simple and your assets are modest, advocates of do-it-yourself wills say the mistakes are easy to avoid. These are the errors to watch for:

* People forget to have the will witnessed, or they have their heirs serve as witnesses. Witnesses are supposed to be able to prove that you were sane and uncoerced when you wrote your will. If a witness is also an heir, his or her testimony can be questioned.

* Poor writing. Consider: “I leave all my assets to Suzie, unless she marries that jerk, John, and decides to become an artist instead of an accountant.” Does the author mean to disinherit Suzie if she becomes an artist, or only if she both marries John and becomes an artist? If your wishes aren’t clear, all or part of your will can be invalidated.

* Not mentioning a child. You may want to disinherit the lazy, good-for-nothing freeloaders currently occupying the spare bedrooms. But if you simply leave them out of your will, a judge may be persuaded that you suffered a memory lapse and forgot to give the freeloaders a rightful share. If you want to disinherit someone, say so. Or leave the person a dime.

* Bequeathing already spoken-for assets. Your will does not control the distribution of all your assets. The proceeds of your life insurance policy go to the named beneficiary, regardless of what it says in your will. Assets held in joint ownership--houses, cars and bank accounts held by husband and wife, for example--revert to the joint owner on your death. You cannot change the beneficiary of these assets in your will. Don’t try.

* Bequeathing for both of you. “We leave all our worldly assets to our children. . . .” You can’t create a joint will. “You die alone,” says Stephen Elias, co-author of WillMaker, a popular piece of will-writing software.

Step 2: Understand Probate

When you die, your assets generally go into a legal limbo called probate.

The process boils down to this: Your executor hires an attorney who files your will with the local probate court. The court sends notice to your creditors stating that you have died and that your estate is being settled. Through legal hearings, the court pays your debts and “proves” the validity of your will.

The benefit of probate is that once it’s through, creditors can’t go after your heirs for payment of a bill. It also settles disputes between heirs.

The disadvantages of probate are also clear. It is time-consuming and expensive.

The best case--a simple, uncontested will--takes about nine months to a year to clear probate. In cases where there are disputed creditor’s claims or infighting among heirs, probate can takeyears.

Hiring a probate attorney, meanwhile, can be costly. They are paid either by the hour or according to a formula set by state law.

In California, the statutory fees are levied as a percentage of your gross estate (the value of your assets before deducting liabilities, such as mortgage loans and creditor’s claims). You pay a maximum of 4% of the first $15,000 in probated assets; 3% of the next $85,000; 2% of the next $900,000, and 1% of amounts over $1 million.

If there are disputed claims or the estate is unusually difficult to probate, a judge can award “extraordinary” probate fees, too. And if you don’t make another arrangement in advance, these maximum fees can be applied to even the simplest case, says Doron M. Tisser, a Calabasas-based estate planning attorney.

The executor is entitled to the same fees, but executors who are also heirs often don’t accept fees. Practically speaking, it’s better to inherit the money tax free than to collect taxable executor’s fees.

All these fees easily can consume your assets when you die. If your estate consists of a $100,000 home, the attorney and executor could claim a total of $5,700 in fees. Let’s say an $80,000 mortgage has to be paid off. In the end, the heirs are left with just $14,300. And if the home is sold, the real estate agent’s fees would come out of the inheritance.

Probate also opens your estate to public view. The curious can look up your case and determine just how much money you had and who got it.

Step 3: Skirting Probate

The time, expense and public nature of probate have spawned an industry whose sole purpose is to help people avoid probate. And by far, the most popular product in the anti-probate arsenal is the living trust.

Living trusts are three-part legal documents which, properly executed, set up a formula that handles the financial aspects of death and possible incapacity without the time, expense and disclosure involved in taking these matters through court.

The first part of the document deals with the distribution of your assets while you are sound of both mind and body. This may be as simple as naming yourself trustee and giving yourself the right to distribute your assets as you see fit.

Part two names a successor trustee who can handle your financial affairs if you fall into a coma or are otherwise rendered incapable of handling them yourself.

Part three serves as a will and provides for the distribution of your assets and the appointment of guardians for minor children after you’re gone.

These documents are revocable, which means you can change or cancel them while you are alive and competent. They become irrevocable at your death.

The disadvantages of living trusts? First, they’re expensive. An attorney will charge $500 to $2,500 to set up a fairly simple one--but that’s still often less costly than probate.

Moreover, property in a living trust may be a bit more difficult to sell or refinance, simply because it’s held in the name of the trust. While lenders say that’s less true today than a few years ago, you still may have problems finding one willing to make a home loan on real estate owned by a trust.

Also, to be effective, the trust must own all your probatable assets. If it doesn’t, your heirs could end up dealing with both trust administrators and probate authorities, which is more time-consuming and costly than probate alone. Since some people don’t remember to deed all their assets to the trust, many attorneys advise executing a so-called “pour-over” will, which transfers any forgotten assets into the trust at your death.

You don’t, however, necessarily need a living trust to avoid probate. All those assets that can’t be left in a will--insurance policies, jointly-owned property and the like--automatically skirt probate. You also can name beneficiaries for pension plans, brokerage accounts and bank accounts, leaving little--or nothing--to the probate process.

Step 4: Estate Tax Planning

Few people bother with estate tax planning because it’s widely understood that estate taxes are assessed only on the “wealthy”--people with assets of $600,000 or more. But, in California, where a modest bungalow in a good ZIP Code can sell for more than $500,000, many middle-class families will find at least part of their estates falling into the clutches of Uncle Sam.

For the really rich, estate tax gambits aimed at trimming inheritance taxes--which range from 36% to 70%--are plentiful and complex. But for middle-income families with just a shade more than $600,000 in assets, the strategies are fairly simple:

* Annual gifts. Before you die, you can give an unlimited number of people up to $10,000 a year without triggering estate or gift taxes, notes Gregg Ritchie, partner in the personal financial planning group at KPMG Peat Marwick in Los Angeles. In addition, he says, you can pay for a child or grandchild’s health care or education expenses.

* Bypass trusts. If you don’t like the idea of annual gifts because you’re worried about having enough money to last you and your spouse’s lifetimes, consider a bypass trust. These devices help married couples leave up to $1.2 million to their heirs without triggering estate taxes.

Sometimes called A-B trusts, these documents start out as a revocable trust, then split into two parts--Part A and Part B--on the first spouse’s death.

The deceased spouse’s part--Part B--spins off up to $600,000 of the couple’s combined assets and becomes irrevocable. Eventually, the assets in the B trust go to heirs other than the surviving spouse. But while the survivor is alive, he or she collects the interest and investment income on the assets. When the second spouse dies, both the assets in the B trust and those in the A trust go to the designated heirs.

* Life insurance. Agents call this the “1% solution,” because it involves paying 1% of the value of your estate for a period of years to purchase an insurance policy. The policy is put into an irrevocable life insurance trust, and the proceeds pay estate taxes after you die.

For how long do you have to ante up 1% of your assets to buy such a policy? The answer varies based on your age, assets and insurer. Generally, the younger you are, the less you pay, for the simple reason that the insurer is able to use your money for a longer period of time.

Of course, paying your money today to save your heirs’ from future tax obligations makes sense only in some fairly unusual circumstances. This option may prove desirable, for instance, if you have a small business that could be rendered insolvent or forced into liquidation if your heirs had to pay estate taxes on its value within nine months of your death. It also could help if you are bequeathing heirlooms or assets that you wouldn’t want your heirs to have to to sell in order to pay estate taxes.

Step 5: Executing an Advance Directive

They may not have had a lot in common in life. But in death, Richard M. Nixon and Jacqueline Kennedy Onassis--who both refused life-prolonging medical treatment--are spurring something of a renaissance in “advance directives.”

These are legal documents that spell out for your doctor the point at which treatment should stop, either by stating the specific conditions under which you refuse treatment or by designating who can make that decision for you.

While the most important purpose of an advance directive is to maintain control over your life, there is also a financial point to signing such a document. Simply put, aggressive, life-prolonging treatments are among the most expensive in medicine. Partly as a result, roughly one-quarter of your lifetime medical costs are rung up in the final 12 months of life--and most of that in the last month.

Arguably, cost is incidental when the procedure saves your life and health. But what about when treatment keeps you alive yet miserable? If that concept frightens you, you may want to draw up an advance directive.

The best-known is the living will, which stipulates that treatment should not be used simply to prolong life when the diagnosis is terminal. Another form is a health-care power of attorney, which gives a spouse, child, relative or friend the legal right to make life-and-death medical decisions for you.

Both documents are commonly provided to patients at nursing homes, hospitals, hospices and senior centers for nominal charges or for free. They are also sold by a variety of national groups and stationery stores.

However, you don’t need a form to execute a viable advance directive, according to Charles P. Sabatino, assistant director of the American Bar Assn.’s commission on legal problems of the elderly. A letter to your doctor stating the conditions under which you’d like to live--and die--should suffice, he says. However, you should specifically mention under what circumstances you would want the doctor to withdraw oxygen, food and hydration devices, as these require specific consent in many states.

Step 6: Funeral Planning

You won’t enjoy it as much, but a funeral can cost as much as a nice wedding--or a luxury car.

And although many people are reluctant to price-check while grieving, shopping around for funeral arrangements can save consumers hundreds--even thousands--of dollars. It’s easy, too, says Lee Norrgard, senior investigative analyst with the American Assn. of Retired Persons’ consumer affairs division.

Federal law requires funeral directors to provide detailed price information on request. The trick is asking the right questions. And that requires some thought. Do you want a traditional burial or cremation? A lavish or budget farewell? Do religious or personal considerations dictate a choice of funeral home or cemetery?

With those thoughts in mind, create a shopping list like the one printed here. Realize that the total cost of a funeral includes more than a dozen elements--many of which are optional. Also realize that burial fees are separate and include several components, some of which also involve choices.

On the funeral side, the biggest cost item is usually the casket. Prices vary from about $250 for an inexpensive wood coffin to as much as $25,000 for a luxury, bronze coffin with adjustable mattress. There are charges for use of the mortuary, services of the funeral director, flowers, music, transportation, preparation of the body, embalming, and obtaining permits and death certificates.

At the burial, the biggest cost is the grave, crypt or “niche” for cremated remains. With in-ground burials, there is often also a charge for an “outer burial container”--typically a cement casement that goes around the casket; fees for opening and closing the grave; a charge for the marker and, possibly, recording fees. For cremations, there’s often a fee for the urn and for a container in which the body is cremated.

Determine your preferences and call several mortuaries. The cost of an identical funeral can vary by as much as $2,000 at different funeral homes in the same city, according to an AARP survey.

“As with any consumer purchase, there is a choice,” agrees Susan Daniels, spokeswoman for the National Funeral Directors Assn. in Milwaukee. “You can choose something expensive or something less expensive.”

Resources

There are numerous books, software programs with advice on financial and legal issues concerning death. Here is a selection of offerings:

WILLS

* “Nolo’s Simple Will Book,” by Denis Clifford. Directions and forms for writing a simple will. Nolo Press, $17.95.

* “WillMaker 5,” published by Nolo Press in Berkeley. Will-making software program for DOS, Windows or Macintosh. $69.95.

TRUSTS-ESTATE PLANNING

* “60 Minute Estate Planner,” by Sandy F. Kraemer. Prentice Hall, $18.95.

* “Make Your Own Living Trust,” by Denis Clifford. Nolo Press, $19.95.

* “Leaving Money Wisely,” by David Belin. Macmillan Publishing, $21.

* “Keep Uncle Sam From Devouring Your Life Savings,” by Stephen M. Rosenberg. Explains trusts, charitable giving and estate planning for disabled children. Career Press, $14.95.

* “Die Rich and Tax Free,” by Barry Kaye. Ways to use life insurance to pay estate taxes. Forman Publishing, $29.95.

ADVANCE DIRECTIVES

* Choice in Dying offers free single copies of state-tailored living wills and health care power-of-attorney forms. Send requests to Choice in Dying, 200 Varick St., 10th Floor, New York, NY 10014, or call (800) 989-WILL.

* “Planning for Incapacity: A Self-Help Guide,” by the American Assn. of Retired Persons. Includes a living will and a health care power-of-attorney form. $5. To order, send check or money order to Legal Counsel for the Elderly, P.O. Box 96474, Washington, DC 20090-6474.

* “Values History,” prepared by Prof. Joan Gibson of the University of New Mexico’s Institute of Public Law, asks a series of questions about fundamental values, feelings about longevity, control and the meaning of life in an attempt to paint a picture of the conditions in which you’d like to live and die. $3. Send requests to University of New Mexico, Institute of Public Law, 1117 Stanford N.E., Albuquerque, NM 87131.

GENERAL

* “Everybody Dies: A Guide to Final Arrangements,” published by Partridge Publications. Send $14.95 plus $2 for shipping and handling to Partridge Publications, 1651 W. Foothill Blvd., Suite F-105, Upland, CA 91786.

* “The Beneficiary Book,” by Martin Kuritz, John Sampson and David Sanchez. Send $30 plus $3 for shipping and handling to Active Insights, P.O. Box 188059, Carlsbad, CA 92009, or call (800) 222-9125.

Comparing Funeral Costs

In shopping for funeral services, it’s smart to make apples-to-apples comparisons. This rundown can help you compare costs.

Item:

Funeral

Casket

Transportation of the body

Use of facilities

Services of funeral director

Music

Flowers

Limousine to transport relatives

to grave site