Why would you leave your most prized possessions up for grabs like they were an old pair of shoes? Yet, many people do not do a will, leaving the fate of their much beloved belongings and loved ones to be sorted out by someone else, most likely the court.
Survey after survey mirror the results of a RocketLawyer.com survey, where more than half of the respondents with children said they did not have a will.
It's understandable why people don't want to think about a will, who likes pondering their last days? But wills are essential and ignoring the fact that all things must come to an end may do far more harm than you can imagine.
“A will is critical to ensuring that what you have goes to who you want, when you want and how you want, ensuring that minor children cared for by whom you decide, as opposed to a probate judge making that decision, and to avoid the unintentional disinheritance of a spouse or children,” says Al Papa, chairman and CEO of Cambridge Consulting Group.
Here's why you need a will.
Protect your children
Should you and your spouse die without a will, the state will decide who will be responsible for taking care of your children. It is important to create a will naming a guardian for your children and outlining who will be responsible for overseeing any assets left to them, says Alex Navarro, senior vice president and private financial advisor with SunTrust Investment Services. However, trusts benefiting your children do not have to be managed by the guardian of your children. Parents who are concerned that the person they named as the child's guardian might not properly manage the funds or their assets may consider setting up a corporate trust, says Navarro.
If there are minor children, they also need protection from themselves until they are able to manage money – in the event of an unexpected early parental death – they could inherit substantial sums, which should protected and managed under a testamentary trust (i.e., one created by the will), explains Eugene Lyle Stoler, a CPA, attorney and partner at the accounting firm of Raich Ende Malter & Co.
Keep your family in control
Should you die without a will, the state will decide which family members will inherit your money and personal belongings.
“Generally, state laws will distribute most of your assets to your surviving spouse, then to your children and their issue. If you have no spouse and no children, the laws look to your parents and siblings,” Rebecca Pavese, CPA and client services manager with Palisades Hudson Financial Group.
What the state decides could be in total contrast to your wishes. “Do you want a judge you never met to decide which of your children gets your wedding ring?” asks Pavese.
Know too that the state's version of your will treats everyone withing a class the same. Say your heirs are your three brothers and you haven't spoken to one of them in 20 years, that sibling shares in your estate in the same manner as the other two, says David DuFault, attorney with Sodoma Law. “Creating a will permits you to disinherit certain individuals.”
Even if you don't object to the way that intestate laws will divide your assets, such laws do not address the nuance a will allows. For example, the law may give half of your estate to each of your two children, but it cannot allow for contention that may arise over your possession. Internal fighting among your heirs will delay the disposition of your estate.
You can better determine the estate tax consequences with a will. Depending on the size of your estate, the default plan under intestacy may cause an immediate tax bill for married persons, says Claudio DeVellis, a partner in the estate planning and administration practice at the law firm of Kleinberg, Kaplan, Wolff & Cohen.
A properly drafted will though, can completely defer any estate tax until the death of the second spouse, he says. This is typically done by setting aside the amount of property that is exempt from estate tax in a trust for the benefit of the surviving spouse, with the remainder of the estate passing to the surviving spouse. For the more affluent, let's say in net worth in excess of $10 million, a certain amount of property can be set aside to avoid estate tax, gift tax and generation-skipping transfer tax in multiple generations. Again, he says, this is typically done by setting aside certain exempt sums in trust for lifetime trusts for children and grandchildren.
Also, if there is tax to pay, your will can direct how that tax is paid and who bears the tax. For instance, says DeVellis, you may want certain assets passing free of estate tax, for example, (minor cash bequests, personal property). “Due consideration must be given to the tax apportionment clause of every will,” says DeVellis.
Think things through
Dying without a will negates any possible charitable intentions. “Regardless of how important a church or charitable organization was to you in your life, the state's version of your will does not provide for charitable gifts,” says DuFault.
In the case of same sex couples, the importance of a will is paramount. Without a will, your partner will likely be left without any rights, warns Navarro. Specifically providing for your partner in a will ensures your wishes for your partner's well-being are followed after your death, he says.
For all the benefits of a will, it is not a magic document. It's equally important to know what a will does not provide. It is not an advance healthcare directive or a healthcare power of attorney and therefore cannot authorize medical treatment, says Mark Powell, an estate planning attorney with Practical Plans. It also does not provide power of attorney for asset management, for example.
Once you do your will, don't forget about it. Stoler advises reviewing your will at least every three or four years to make sure that it distributes your property in accordance with your wishes, that it is up to date and properly structured under the current and constantly changing estate laws.
Says Powell, “Reduce the hassle your family will endure. Without a set of instructions from you, your family will be left to fend for themselves inside a process written by legislators.”