Developing your life plan: making sure financial documents are available during a family crisis can save you time, money, and pain. (Estate Planning).

THE LAST THING ANYONE WANTS TO DO IS CONTEMPLATE DYING OR BECOMING INCAPACITATED due to serious injury--but think about it. What would happen if you were suddenly taken from your family and friends in a tragic accident, or if you developed a serious illness that prevented you from making critical decisions for yourself? Does anyone close to you know what decisions you would want made, or where you keep all the important papers needed to carry out your wishes?

You need to rectify this situation now. Having the foresight to develop a responsible plan to handle issues that may result from death or incapacitation is a difficult but necessary part of everyone's life plan. If you haven't already considered your estate planning needs, take the time to begin structuring critical financial and legal papers--such as wills, trusts, and power of attorneys--documents that can save your family time, money, and pain in a crisis. Making sure you have these documents structured properly and stored in a safe and easily accessible place can have a major impact on the future financial well-being of your surviving relatives.

Elizabeth Woods planned things right. Before losing a bout with cancer, Woods, a faithful member of the Revival Time House of Prayer Church in the Bronx, New York, had been careful to tell her family that she wanted her wake to be held at the church, with her pastor performing the eulogy. She also granted her husband, Joseph Woods, 73, power of attorney, allowing him to arrange and place all of her assets in his name. That made it easier for the family to pay the $5,000 funeral cost and distribute other financial gifts as outlined in Woods' will.

"When someone you love passes, there's a lot of grief and emotion," says Steven Woods, Elizabeth's 39-year-old son, who handled many of the funeral arrangements. "You don't think about financial details until [a tragedy] happens. But a lot of people might not have any real plan in place when it does."

Whether married or single, you need an estate plan to avoid serious consequences that can occur if you were to die or become seriously injured. "For those who have children, you want to make sure that your children are cared for and raised by a person, of persons, who you deem fit to do so," explains Cheryl Creuzot, president of Wealth Development Strategies L.P., a Houston-based estate and financial planning company. "You also want to make sure that your property passes to the people you want it to pass to, and you want to reduce the erosion of your estate due to administrative costs and taxes."

PUTTING PAPERS IN PLACE

After their mother's funeral, Steven, and his 48-year-old brother, David, persuaded their father to let them hire a lawyer to prepare a will for him. Steven notes that his father has substantial assets--including stocks, bonds, and several bank accounts--and a will would ensure that they are dispersed as the senior Woods desires, avoiding squabbles between siblings and legal hassles in state probate court. "If you don't have legal documents to protect your assets, they could end up anywhere," says Steven, who works at Duetsche Bank in Manhattan.

Financial experts suggest consulting a professional to create a detailed estate plan, which will put in writing where you want assets to go and designate a family member, relative, or trusted adult to execute it. These experts also suggest safeguarding all precious financial documents by keeping copies in a secure place such as a fireproof safe or bank safe-deposit box and by making sure those executing your estate plan know how to access your documents quickly. Here's a list of documents to consider when developing a life plan.

* Will. A will is a legal document that determines where your property, or probate estate, will go after your death. Your will can include real estate, jewelry, cash, and stocks, but cannot dispose of nonprobate assets, such as jointly owned property, life insurance with a named beneficiary, or any asset or financial account that will automatically pass to a named beneficiary.

A will also allows you to name an executor (the person who follows the instructions of the will on behalf of the decedent), typically, a surviving spouse or trusted relative. Some wills also allow you to include a guardian for children, such as a grandparent or sibling, designated by parents, to step in and raise the children if necessary.

If you die without a will, the state of your last legal residence will distribute your assets as it sees fit. A simple will for a single person can cost $400-$600; for married couples, $600-$800.

* Living will. A legal document, also known as a directive to physicians, tells loved ones whether you want doctors to take extra steps to keep you alive. The costs of preparing a living will are nominal and are typically added to the costs of having a conventional will of living trust prepared.

* Trust. A trust is a legal document used to hold a person's property for one or more beneficiaries upon death. In most cases, the person names a trustee, a person of institution to manage the trust's assets in a way that will benefit the beneficiaries.

There are many kinds of trusts. They can be used to eliminate tax consequences, support a surviving spouse or children, or help with special needs like paying a family member's bills. They can also be structured to protect an estate from ex-spouses and creditors. A revocable trust allows you to control assets and change terms anytime; irrevocable trusts allow such changes while a person is living. Both cost about $700 to prepare. A "Gift-to-Minors" Trust can cost $1,000. (For more information on wills and trusts, see sidebar.)

* Power of attorney. This legal document empowers a spouse, relative, or trusted adult to conduct financial transactions for you, mainly if you become incapacitated. The person designated can sign checks or make business decisions as if they were you. A durable power of attorney becomes effective immediately. A medical power of attorney allows someone to make medical decisions should you become incapacitated.

PASSING WEALTH TO THE NEXT GENERATION

Having a will or trust alone does not mean that you have an estate plan. The above documents will help your family manage through the difficult times involving death or major injury, but only a team of professionals can formulate a strategy for the distribution of family assets, tax savings strategies, insurance coverage, and financial planning that will make for an effective estate plan. "African Americans have made significant strides in terms of economic empowerment, and estate planning is extremely important for us so that we can retain what we've accumulated as a legacy for successive generations," says financial planner Creuzot.

The challenge of distributing assets among six adult children is what motivated Paul Norman and Lurline Baker-Kent to get serious about estate planning. The couple's plan includes two irrevocable trusts that will prevent nearly $2 million in combined assets from being challenged in probate court. Since Paul, 60, and Lurline, 63, each had a previous marriage, the trusts also prevents former spouses from contesting their assets in court.

With Lurline's four sons (Michael, 44, Keith and Kenneth, both 42, and Darnell, 39) and Paul's son and daughter (Chad, 24, and Lisa, 39), the couple did not want their blended family squabbling over assets when they die. Paul is a psychologist at Hennepin County Health Mental Case Management and Lurline is a retired assistant commissioner and founding director for the Center for Excellence in Urban Teaching at Hamlin University in St. Paul, Minnesota. The couple's assets include a $325,000 home, a $400,000 life insurance policy, $100,000 in mutual funds, and two time-share condos in Hilton Head, South Carolina. They say the $2,000 it cost to create the trusts is well worth it.

"Our kids get along fine, and we want to make sure there is no haggling or ambiguity over the assets," says Lurline. "People might not do this because it's not free, but it can help eliminate a lot of grief and bickering between offspring."

Lurline has an additional trust that includes a $200,000 home in California that her 82-year-old mother will live in until she moves to a nursing home. The trust states how assets should be used to make mortgage payments, pay taxes or other expenses while her mother lives there. Upon her mother's death, the trust calls for the home to be sold and the money to go to Lurline's 58-year-old sister Marie Carter, their mother's caretaker. Lurline's main motivation for doing this trust is to ensure that, should she die, her mother will be taken care of.

"We, as African Americans, are afraid to raise [estate planning] issues because feelings of distrust or bitterness come up," she says. "But a family is a business, and we need to look at it that way."

Lurline and Paul's strategy was recommended by their financial adviser, Marilyn Broussard, a certified financial planner at the financial services firm of Waddell & Reed in St. Paul. In addition to advising clients about the importance of critical financial documents Broussard--a single adult with no children--had a power of attorney drawn up for herself in the event that she become unable to handle her finances. The document would allow a sister to manage her money, including paying bills, handling insurance, and managing other assets. Another sister is named if the first is not able to perform the duties. The same concept applies to her medical power of attorney--a sister would make medical decisions if she could not.

"For singles, choosing who you would have perform these duties can save family dissension and going to court to establish who will be given legal authority to do what you cannot do for yourself," says Broussard.

The proper combination of wills, trusts, and other financial documents can ensure that assets you wish to pass on to relatives are protected from creditors, and that your estate's value isn't significantly eroded because of unnecessary administrative costs and estate taxes. Creuzot says having such a plan is crucial. "We really stress the importance of estate planning," she says. "It does not make sense to assist clients with accumulating significant assets only to have them die and significantly disinherit their children because 50% of the estate will go to the IRS."

So consider estate planning as part of your overall investment plan and your overall plan for life. Make sure that your life's legacy is to create as much value for the next generation as you did for yourself.

RELATED ARTICLE: Estate Planning Help

BOOKS

Estate Planning Basics by Denis Clifford (Nolo Press, $21.99)

J.K. Lasser's New Rules For Estate and Tax Planning by Harold Apolinsky and Stewart Welch III (John Wiley & Sons Inc., $16.95)

WEBSITES

Quicken www.quicken.com/retirement/ Provides an Estate Planning Guide, plus advice, articles, current news, and columns about retirement issues and products

MSN Money Central http://moneycentral.msn.com/articles/retire/estate/ contents.asp?p=2 Provides a step-by-step process to plan your estate right on their Website

National Association of Financial and Estate Planning (NAFEP) www.nafep.com/estate_planning/ Information on home mortgages, wealth planning, protection of assets, and tax tips

Estate Planning Links.com www.estateplanninglinks.com Contains hundreds of well organized, timesaving links to estate planning, elder law, taxes, and related Websites